The “State of Pensions 2023” report from Equable Institute suggests that state and municipal pension funds are likely to fall short of their investment targets this year. As a result, they are not expected to see significant improvements in their unfunded liabilities or funding ratios.
According to Equable’s release, in 2022, unfunded liabilities increased to $1.57 trillion, leading to a national aggregate funding ratio of 75.4%. This decline was attributed to negative investment returns. Looking ahead to 2023, Equable projects a modest increase in the aggregate funding ratio for U.S. state and local pension funds, expecting it to reach 77.4%.
However, unfunded liabilities are predicted to remain relatively unchanged at $1.49 trillion compared to the previous year, mainly due to underperforming investments. Decreasing returns also require diligent reviews of existing portfolios and the contribution of the respective investment, but more importantly to analyze the related investment and operating cost.