Industry News

Recently, S&P Global Ratings published its report, Five U.S. Public Pension and OPEB Points to Watch in 2024. In this report, S&P Global identified five factors for U.S. public pensions to monitor in the coming year.

The factors include:

• In fiscal 2024, U.S. public pension funded ratios are expected to improve due to positive market results in the first half of the year.
• U.S. public pensions may face increasing risks since discount rates used to measure the funded ratio are based on more diverse and less transparent asset allocations.
• Recent inflation volatility affects many pension and retiree medical (other postemployment benefit (OPEB)) elements, and the Consumer Price Index (CPI) has extended below long-term rates.
• The issuance of Pension Obligation Bonds (POBs) halted in 2023 and issuers may wait for the current volatile market to settle with lower interest rates.
• An aging population intensifies contribution risk due to market volatility.

According to the report, “U.S. pension plans, on average, assume annual asset returns of 7% and returns above or below this assumption equate to a “gain” or “loss” compared with planned inflows that might affect contributions and credit stress. We estimate that a typical public pension plan will have experienced a gain due to a return of about 6.5% for the first half of fiscal 2024 (13% annualized), which is 3.0% above the half-year assumption of 3.5% (annualized to 7.0%).”

The report is available here.