By: Russ Kamp, CEO, Ryan ALM, Inc.

Milliman has released details related to the recent update of its Milliman 100 Public Pension Funding Index (PPFI) covering both December 2024 and January 2025. The index consisting of the U.S.’s largest 100 public pension funds revealed a slight decline in the average funded ratio at the end of 2024 to 80.0% from 81.7% at November 30. An average return of -1.7% on assets drove the funded ratio down. However, January’s result highlighted a 1.9% average gain and an improvement in the average funded ratio to 81.1% at month-end.

It was also reported that the deficit between plan assets and liabilities grew by $44 billion, as a deficit of $1.184 trillion at the beginning of December 2024 became $1.227 trillion at the end of January 2025. These mega funds experienced combined outflows of about $9 billion/month. Importantly, 31 of the index constituents have funded ratios greater than 90% with 7 of those plans registering a funded ratio of 105% or better. Unfortunately, 9 of the plans have funded ratios <50%. As a reminder, a plan with a 50% funded status and a 7% ROA objective actually needs to produce a return of 14% just to keep the funded status from deteriorating…and a 80% funded status requires an actual ROA of 8.75%.

It would be interesting to know what asset allocation changes, if any, have been adopted by those plans with funded ratios >90%. Given significant uncertainty in the markets and the U.S. economy, plans should be looking to reduce risk and improve liquidity at this time. We’ve seen considerable improvement in the funded status of a number of large public pension systems. It would be a tragedy to see this improved funding go to waste should markets enter a period of weakness.