Industry News

On September 7, 2023, S&P Global released its report, U.S. State Pension and OPEBs: Funding Progress is Likely to Pick Up in 2023 After Slipping in 2022. S&P Global reported that the funded ratios of U.S. state pension and other postemployment benefit plans are projected to improve for the fiscal year ended in June 30, 2023. The improvement is expected to be marginal and will likely exceed the potential near-term pressures to states’ debt and liabilities.

According to S&P Global, “absent prudent risk management over time, a confluence of factors, structural demographic shifts including an aging population, and medical cost growth, could add budgetary pressure tied to pension and other postemployment benefit (OPEB) funding longer term.”

Other key highlights include:

• Unless there are plan modifications, contribution rates could increase to address pension funding shortfalls, which may lead to longer-term budget pressure for some states.
• The potential for further monetary policy restraints and slower economic growth, or equity market uncertainty could require states to enhance their pension funding discipline to meet their assumed investment return targets.
• Without substantial plan reforms or increased contributions, retiree medical or OPEB plans remain markedly underfunded and will not likely change.

The report is available here.