Report: Aggregate U.S Public Pension Funding Improved in 2014; States Got Better At Making Contributions

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A new report from the Center for Retirement Research reveals that the aggregate funding ratio of U.S public pension plans rose by 2 percentage points in 2014, from 72 to 74.

According to the report, it was the first time the country’s aggregate funding had improved since 2008.

One reason: states got better at making their required contributions to pension systems.

From MarketWatch:

For the first time since the financial crisis of 2008, funding improved, with the aggregate funded ratio rising from 72 to 74 percent under the old Governmental Accounting Standards Board accounting standards (GASB 25).

The year 2014 was always going to be a pivotal one for the funded status of public pension plans because, under the old GASB 25 accounting standards, the disastrous stock market performance of 2009 rotates out of the smoothing calculations for the majority of plans that use a five-year averaging period.

But 2014 also became pivotal because it was the first year that plan sponsors reported under GASB’s new accounting standards for their financial disclosures. The new GASB 67 standards involve two major changes. First, assets are reported at market value rather than actuarially smoothed. Second, in cases when assets are projected to fall short of future benefits, liabilities are valued using a “blended” discount rate.

[…]

The other piece of good news pertains to annual contributions. Despite the fact that the required contributions relative to payrolls continue to climb, plan sponsors are contributing more of the required amount – 88 percent in 2014, up from 82 percent in 2013.

The Center for Retirement Research estimates aggregate funding will rise to 80 percent by 2018.

Read the report here.

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