Today, Equable Institute released a mid-year update to its State of Pensions 2023 report. The analysis finds the aggregate funded ratio for U.S. state and local retirement systems are on track to improve from 75.0% in 2022 to 78.8% in 2023, based on data available through September 30^th, 2023. Equable Institute estimates that unfunded liabilities will total $1.39 trillion for the 2023 fiscal year, compared to $1.59 trillion at the end of 2022.

As more data becomes available about fiscal year 2023, it’s clear that the investment performance of U.S. public pension funds is mixed. Roughly half of the pension funds that end their fiscal year in June have preliminarily reported they exceeded their investment assumptions. The other half have missed their investment targets for 2023. This variance has translated into an average investment return of 5.6% for public plans in 2023, as of September 30^th — which is below the nationwide average 6.9% assumed rate of return.

“It’s nice to see pension fund investments rebound from losses in 2022,” said Equable Institute executive director Anthony Randazzo. “And its particularly noteworthy as markets were still trending down at the start of the 2023 fiscal year, suggesting that pension funds used the second half of their fiscal year to make a strong recovery. However, it is still concerning that the average 2023 actual return is below the assumed rate of return for 2023. It is likely that persistent unfunded liabilities will remain a threat in the coming years unless we see significant improvements in returns or increases in contributions.”

Equable Institute notes that pension funds’ ability to build on the positive momentum of the last half-decade will hinge on how they manage increasing levels of “valuation risk”, chronic unfunded liabilities, and continued market volatility.

Read more @finance