Milliman Issues Third Annual Public Pension Funding Study

SEATTLE, Nov. 5, 2014 /PRNewswire/ -- Milliman, Inc., a premier global consulting and actuarial firm, today released its third annual Public Pension Funding Study, which consists of the nation's 100 largest public defined benefit pension plans and analyzes these plans from both a market value and an actuarial value perspective. Strong market conditions have propelled improvement in the market value of plan assets, and that improvement has exceeded the increase in accrued liabilities. However, the market losses suffered during the financial crisis continue to cause a drag on the actuarial value of plan assets, resulting in a slight decrease in the funding ratio when analyzed from that perspective. The two asset measures are converging and funded ratios have crept upward as these plans have continued to distance themselves from the financial crisis. Meanwhile, investment return assumptions were level from the prior year but remain higher than current long-term market return expectations, causing concern that accrued liabilities may be modestly underreported.

"Our study provides an independent investment return assumption, which we use to recalibrate the liabilities for these 100 plans," said Becky Sielman, author of the Milliman Public Pension Funding Study. "While the investment return assumptions and funded ratios remain fairly level from last year, the gap between Milliman's recalibrated accrued liability and the plan-reported accrued liability widened from 2.6% in 2013 to 3.8% in this year's study. While Milliman lowered our median investment return assumption from 7.47% in 2013 to 7.34% this year, only 13 of the 100 plans in our study reported a reduction in their investment return assumption this year. We expect more plans will consider lowering return assumptions in coming years in response to market conditions."

This year's study revealed a number of other developments. The number of retired/inactive members in these 100 plans grew from 11.8 million members to 12.1 million. In the aggregate, the plans currently have sufficient assets to cover 100% of the sponsor-reported accrued liability for retirees and inactive members, but beyond that would cover only 29% of the liability for active plan members.

This year's study explores whether poorly funded public plans are more apt to use unrealistically high investment return assumptions or invest disproportionately in risky investments. Contrary to common perception, the study finds that there is in fact very little correlation between a plan's funded status and the use of high interest rates or riskier investments.

To view the complete study, go to www.milliman.com/PPFS. To receive regular updates of Milliman's pension funding analysis, contact us at [email protected].

About Milliman
Milliman is among the world's largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe. For further information visit www.milliman.com.

About the Milliman Public Pension Funding Study
The Milliman Public Pension Study is based on the most recently available Comprehensive Annual Financial Reports and actuarial valuation reports, which reflect valuation dates ranging from June 30, 2011, to January 1, 2014; about two-thirds are from June 30, 2013 or later. For the purposes of this study, the reported asset allocation of each of the included plans has been analyzed to determine an independent measure of the expected long-term median rate of return on plan assets. The sponsor-reported accrued liability for each plan has then been recalibrated to reflect this independently determined investment return assumption. This study therefore adjusts for differences between each plan's reported assumed real rate of investment return and an independently calibrated current market assessment of the expected real return based on actual asset allocations. This study is not intended to price the plans' liabilities for accounting or near-term plan settlement purposes or to analyze the funding of individual plans.

SOURCE Milliman