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CRR/SLGE Examine Impact of Market Decline on Public Pension Plans

On May 12, 2020, the Center for Retirement Research at Boston College (CRR) and the Center for State & Local Government Excellence (SLGE) released a new report, 2020 Update: Market Decline Worsens the Outlook for Public Plans.  According to the report, “If markets remain at their current levels until June, most state and local pension plans will end fiscal year 2020 with negative annual investment returns, reduced asset values, lower funded ratios, and higher actuarial costs.” The research indicates that funded ratios may decline between 7 and 14 percentage points by 2025 and government contribution rates may increase by between 5 and 9 percentage points, depending on the rate of the economic recovery.  

Other key findings include:

  • The ratio of assets to liabilities for public plans declined from 71% in 2019 to 69.5% in 2020. As a result of this decrease in the funded ratio, the average actuarially determined contribution is estimated to increase from 18.8% to 19.7% of payroll.
  • From 2020-2025, the average funded ratio for public plans is projected to steadily decline. If markets do not fully recover until 2025, most pension plans have the assets to weather the current challenges through 2025 and beyond.
  • The lowest funded plans will remain solvent during the next five years, but a few are projected to face an increased risk of exhausting their assets soon after 2025.

The brief is available here.