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Pension Plans Are Preparing for the Next Shocks

How public pensions are adjusting to the pressures of the current moment—and what that means for managers of every type of pension plan.

By Marnix Engels | July 03, 2023 at 02:50 PM
Stock illustration: Giving a piggy bank a shot

U.S. public pension plans averaged a negative return of -6.14 percent last year, falling far below the +6.9 percent average assumed annual rate of return for the sector, according to analysis by the nonpartisan Equable Institute.

Steep declines in investment markets and rising inflation hit returns across the sector, which was only just recovering from the impact of the Covid-19 pandemic. Pension plans face increasing pressure, as cost-of-living adjustments increase the potential risk to the retirement plans of millions of Americans.

The average funded ratio for U.S. public pension plans was 77.89 percent in 2022. Collectively, they had total accrued liabilities of $6.369 trillion and total unfunded liabilities of $1.445 trillion. Around one in seven U.S. public pension plans had funded ratios of 60 percent or less, and just one in eight had funded ratios of 100 percent or more. These ratios are an important measure of funds’ current financial position, and they ultimately show whether the funds hold enough reserves to pay out pension benefits to current and future members.

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