Why a Decade of Bull Markets Hasn’t Fixed Pension Funding
In 2008, the average U.S. pension fund had 83 percent of what it needed to make good on retirement benefit promises. As of the end of 2018, pensions had only 72 percent, according to Conning’s “State of the States” report released Wednesday.
“During the past decade, state pensions have had three main roadblocks to improving their funded status: restructuring, underperformance, and reduced contributions,” wrote the authors, who are members of asset manager Conning’s municipal research team.
Part of the problem for pensions’ funded status — the gap between assets and liabilities — has been restructuring. States have pushed out their amortization schedules — essentially calculating their liabilities over a longer period of time — and lowered the rates of return that they expect. Using more realistic expectations of what the market will contribute to their funds’ financial health is a positive move in the long term, but the changes have immediately increased those states’ pension liabilities.
Read more @Institutional Investor
