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S&P Global Reports on U.S. States’ Risk Reduction in Managing Pension and OPEB Liabilities
On September 20, 2021, S&P Global Ratings published its report, U.S. States Weigh Risk Reduction in Managing Pension and OPEB Liabilities. According to the report, the average U.S. state-funded ratio decreased for fiscal year 2020 from 70.9% to 68.9% mainly due to market returns during the pandemic-induced recession. However, funded levels are expected to improve for many plans due to the generally strong market returns in fiscal year 2021.
Other key findings include:
- 14 U.S. states met S&P’s minimum funding progress metric for pensions, which indicates that they made substantial contributions toward full funding.
- In target portfolios, most states continue to reduce market risk exposure that leads to lower discount rates and higher reported liabilities.
- During the pandemic, state retirement plans benefited indirectly from historic levels of federal aid, but large unfunded liabilities continue.
- Since most states direct limited resources to other priorities, retiree health care plans remain significantly underfunded.
The report is available here.