By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Milliman is reporting that funding for public pensions improved in February. According to Milliman’s Public Pension Funding Index (PPFI), which analyzes data from the nation’s 100 largest public defined benefit plans, the average funded ratio improved from 77.7% at the end of January to 78.6% as of February 29, 2024. This represents the highest funded status since May 2022, which was just after the Fed (March) started raising US interest rates.

The PPFI plans returned an estimated 1.7% in aggregate for February. “Individual plan returns ranged from an estimated 0.0% to 3.2% for the month, while the plans gained around $79 billion in total market value”, according to the report. The current deficit between assets and liabilities now stands at $1.33 trillion following an improvement of $56 billion in the past month.

According to Becky Sielman, co-author of Milliman’s PPFI, by the end of February “we’re holding on to the gains we saw in Q4 of last year, with 21 plans above 90% funded, and 15 plans below 60% funded.” Please note that accounting rules for public pensions allow for the discounting of liabilities at the plan’s return on asset assumption (ROA). The median rate stood at 7% in this study. US interest rates have backed up nicely during the first 2+ months of calendar year 2024. The actual improvement in the average funded status may be understated.