Public Pensions in ‘Fragile’ State in 2023: What’s the Outlook for All Pensions in 2024?

Private pension funds are not as fragile as state and municipal pensions because they have tighter regulatory rules that govern their accounting and contribution rate requirements, according to Equable Institute.

By Kristen Beckman | November 03, 2023 at 10:07 AM

State retirement systems remain fragile as of the end of the third quarter, with investment performance of state and local pension funds falling short of targets. This is a concerning trend, as each year investment returns underperform expectations, a vicious cycle perpetuates wherein contributions are being fully consumed by benefit payments, pension funds rely on investment returns to make up the balance, and pre-fund benefits for active members are not being fully funded, according to Equable Institute.

State and local pension funds were impacted by the bear market in 2022 followed by the community bank uncertainty before markets rebounded this past summer. The average funded ratio for U.S. state and local pension funds is expected to improve from 75 percent to 78.8 percent this year, and unfunded liabilities will decline slightly, from $1.59 trillion last year to $1.39 trillion this year, according to Equable Institute’s State of Pensions midyear update.

The average investment return for 2023 is 5.6 percent, according to the report. This represents an improvement from a negative 5.9 percent return last year but is still below the 6.9 percent average assumed rate of return for U.S. pension plans. In addition, the average 10-year return is now 7.3 percent, the lowest it has been since 2018.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
Exclusive discounts on ALM and Treasury & Risk events.
Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now

NOT FOR REPRINT

Dig Deeper

Pension Management

Recommended Stories

Pension Plans Are Preparing for the Next Shocks

Marnix Engels | July 03, 2023

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

50 U.S. Senators Propose to Overturn DOL’s New Sustainable Investing Rule

David Baumann | February 08, 2023

Forty-nine GOP senators, as well as Sen. Joe Manchin, plan to reintroduce a resolution attempting to block enforcement of the DOL’s new ESG regulation for retirement plans, which took effect Monday.

Texas Warns Pensions to Sever Ties with BlackRock

Danielle Moran & Shelly Hagan | February 27, 2023

A letter from the comptroller to major state-employee pensions provides a list of “energy boycotters,” claiming firms including BlackRock, UBS, and Credit Suisse “should not ... benefit from assets invested for the future of Texans while simultaneously undermining our state’s economic future.”

Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
Exclusive discounts on ALM and Treasury & Risk events.
Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.