Industry News

Recently, S&P Global Ratings published its report, Pension Funded Ratios Fall for Most U.S. Big Cities on Weakened Investment Returns. In the report, S&P Global Ratings assesses the pension funded ratios of 20 of the largest cities in the U.S. Over the past five years, volatile market returns have resulted in temporary changes in the funded ratios of the largest plans in the selected cities. However, S&P Global indicated that overall plan contributions have remained stable during this time period.

The key findings include:

• The median pension funded ratio for the 20 largest U.S. cities decreased from 78.5% in fiscal 2021 to 70.6% in fiscal 2022.
• The decrease in funded ratios was mainly due to investment returns falling from the highs in 2021.
• While some losses from the volatile markets in 2022 could recover slightly in fiscal 2023, S&P Global is predicting relatively slow growth over the next few years and that it is unlikely that funded ratios will return to near-2021 levels in the near term.
• Most cities do not prioritize pre-funding their other postemployment benefits (OPEB) liabilities, which may lead to future cost pressure.

According to the report, “Our view that funded ratios will not return to 2021 levels is further supported by the fact that in fiscal 2022 fewer cities met our minimum funding progress (MFP) metric for at least one of their two largest pension plans than in the prior year.” It added, “Cities with the largest shortfalls in contributions compared to MFP have accumulated large unfunded liabilities, which shows the effect of deferring pension costs for short-term budgetary relief.”  

The report is available here.