Industry News

On May 15, 2020, the Society of Actuaries (SOA) published its updated research brief, Impact of COVID-19.  The brief is updated regularly and examines the impact of COVID-19 on: 1) the economy and assets; 2) insurance; 3) retirement plans; 4) health care costs and utilization; 5) social insurance; and 6) other topics.

Beginning on page 55, the brief discusses the impact of COVID-19 on public defined benefit retirement plans.  According to the SOA report, “While market downturns clearly result in increased unfunded liabilities, the most pressing concern of public pension plans may be the funding of contributions due in 2020.  Because of the widespread COVID-19-induced downturn in economic activity, states and local governments are generally expecting significantly reduced revenue during 2020.” 

The report also states, “Increased contribution needs resulting from increased unfunded liabilities are less pressing concerns for a couple of reasons: actuarial smoothing techniques and timing lags.  Most public pension plans employ actuarial smoothing techniques when determining contribution needs, including asset smoothing and amortization approaches. Asset smoothing details vary from plan to plan, but the intent is universal: to spread over time the impact of both positive and negative asset volatility. While most plans will likely have asset losses stemming from recent market downturns, they will spread those losses over time. In addition, many plans have not yet fully recognized asset gains of recent years, which will also help cushion the blow to increased contribution needs.”

The brief is available here.