Industry News

On May 6, 2020, S&P Global Ratings released its report, Pension Brief: The Future of U.S. Public Pensions After the Sudden-Stop Recession.  According to the report, due to the sudden pandemic-induced recession, U.S. public pension plan sponsors and administrators are likely nearing a period of fiscal economic stress and growing pension obligations that may impact state and local governments for several years.  Generally, for public sector plans, market returns are built into the funding model and comprise a significant part of pension plan inflows.  S&P indicated that if market returns remain below previous peaks, the effect of poor returns will result in an increase in employer contributions.  The report examines the recession impact on public pensions during three time periods: 1) immediately (liquidity); 2) over the near-to-mid-term (funded levels); and 3) over the long term (maintaining sustainable funding). 

The key findings include:

• In aggregate, U.S. public pension funds lost about $850 billion in the first quarter of 2020.
• In the second quarter of 2020, a return of nearly 30% is needed for government-sponsored pension systems to maintain the 73% average funded ratio from 2019.
• If experience follows the trends of the Great Recession of 2008, adjustments to reduce plan costs and increase contributions are likely to ease budgetary pressures.

The report concludes, “The current sudden-stop recession will affect many aspects of pension system management, and while deferring costs in the near term may provide budgetary flexibility and be a liquidity management tool, it will increase long-term pension costs.”

The report is available here.