S&P recently released a report that suggests that U.S. state pension reforms may mitigate the effects of a future recession.
Despite poor investment returns and reduced plan contributions, “many states have made conservative changes to actuarial methods and assumptions that, while hindering actuarial funding ratios, show a more realistic assessment of market risk tolerance for states, thus better enabling them to make funding progress.”
States’ conservative changes include lowering assumed rates of return to more realistic percentages. “In 2018, 18 states lowered their assumed rate of return for their largest plans while 15 did so for their second-largest plans. On average, largest plan downward revisions were marginal, at just 0.24%….The lower assumed rates of return reduce states’ exposure to market volatility, minimizing swings in required contributions with investment returns, and providing for faster funding progress.
Read the full report at S&P Global.
This article quotes selections from “U.S. State Pension Reforms Partly Mitigate The Effects of the Next Recession” published by S&P Global in September 26, 2019.