The coronavirus has increased pressure on underfunded public pension plans that were already facing significant stress before the crisis. Not only have plans’ investment portfolios taken double-digit losses as a result of the pandemic, but government plan sponsors will need to increase their contributions at a time when revenues are down and expenditures are up.

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“This has put a lot of strain and stress on pension deficits, and it’s going to get worse,” said Kevin McLaughlin, head of liability risk management at Insight Investment. “Pressures that were there before are now magnifying. It’s quite worrying.” The pandemic has unleashed havoc on markets — and plans’ portfolios. Moody’s Investors Service estimates that U.S. public plans are generally on pace for an average investment loss of about 21% for the fiscal year ending June 30.

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A report issued March 24 by the New York-based credit ratings agency noted that domestic public plans are facing nearly $1 trillion in investment losses because of the economic fallout from the coronavirus.

These losses could exacerbate the pension liability challenges that many state and local governments already are facing. Plus, the economic setback is reducing revenue levels and threatening the ability of state and local governments to afford higher pension costs.

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