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2012 Public Pension Funding Study

November 30, 2012

2012 Public Pension Funding Study

Source: Milliman

The Milliman Public Pension Funding Study independently measures the aggregate funded status of the 100 largest U.S. public pension plans using basic actuarial principles and reported plan liabilities and assets. The aggregate accrued liability information provided has been determined on a uniform basis with respect to the interest rate assumption across all of the plans in the study. This uniform approach allows for an accurate picture of the overall funded status of these 100 pension plans based on an independent application of Actuarial Standards Board (ASB) standards of practice, actual investment portfolios, and current capital market assumptions. We are not aware of any other study that has taken this approach and we feel this is an important story that needs to be told.

During the past year, the 100 largest U.S. public pension plans (as measured by accrued liability) reported assets of $2.705 trillion and accrued liabilities of $3.600 trillion, for an aggregate underfunding of $0.895 trillion and an aggregate funded ratio of 75.1%. The asset values the plans use for reporting purposes reflect asset smoothing techniques, which are designed to minimize fluctuations in contribution amounts but may deviate significantly from market value. The liabilities the plans report may not reflect current views on future investment return levels. Using current market values of assets and current views on investment returns, these plans have assets of $2.513 trillion and accrued liabilities of $3.706 trillion, resulting in aggregate underfunding of $1.193 trillion and an aggregate funded ratio of 67.8%.

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