Industry News

On July 17, 2023, the Center for Retirement Research at Boston College (CRR) released its issue brief, Public Pension Funded Levels Improve Amidst Rising Interest Rates. The brief indicates that the funded status of state and local pension plans has increased about two percentage points since 2023 and five points since 2019.

Despite the volatility of asset values since 2019, strong investment performance for most asset classes (excluding those for fixed-income assets (i.e., bonds)) has helped to improve the funded status of pension plans. The brief notes that the recent rise in interest rates to curb inflation has only marginally impacted the overall finances of public pension plans.

According to the brief, “Since [Fiscal Year] FY 2019, financial markets have been jostled by the onset of COVID; the subsequent COVID stimulus; declining interest rates; rising inflation; and rising interest rates. Despite the volatile path of market asset values over this period, the FY 2023 funded status of state and local pension plans is about 78 percent – higher than in FY 2022 and about 5 percentage points above the FY 2019 level.” It also indicated that “pension funds have been navigating rising interest rates. While this increase has hurt their fixed-income holdings, the overall impact has been offset thus far by the relatively strong performance of other asset classes.”

The brief is available here.