Industry News

Recently, S&P Global Ratings published its report, Pension Brief: U.S. Public Pension Funded Ratios Continue Improvement in 2024. In the report, S&P Global Ratings assessed the U.S. public pension funded ratios. In fiscal year ended June 30, 2024, S&P Global expects asset performance will improve funded ratios for U.S. public pensions with an expected 16%-17% return. This may add to the positive returns for fiscal 2023 that are estimated at 12%.

The key findings include: 

• U.S. pension funded ratios are expected to continue increasing in fiscal years 2024 and 2025 due to progressively positive market returns.
• Inflation may focus on many features of pension funding and continue its decline toward previous lows, but at a slower rate than formerly projected.
• Pension plan sponsors face contribution volatility risk since market returns are based on increasingly opaque and diverse asset allocations.

According to the report, “U.S. pension plans, on average, assume annual asset returns of 7%, so plan asset growth needs to meet or exceed that assumption to maintain funded ratios and mitigate contribution stress. Year-over-year market returns are built on a combination of inflation and real returns that correspond with market risk inherent within an individual plan’s target asset portfolio.” It adds, “While positive market returns help with pension funding in the near term, salary and benefit increases directly add to pension liabilities. As inflation returns to lower levels, we see a general push toward increasing market risk renewed within target portfolios that could lead to contribution volatility and possible budgetary stress.”

The report is available here.