Funding Public Pension Plans–Theory and Practice



The Pension Practice Council’s Jan. 25 webinar, “Funding Public Pension Plans—Theory and Practice,” highlighted the Academy’s issue brief The 80% Pension Funding Myth; explored prudent funding practices; and examined considerations being made in the management of “surplus” for state and local public employee pension plans.

Presenters were Academy Pension Vice President Sherry Chan; Paul Angelo, a member of the Public Plans Committee; and Academy member David Lamoureux. Public Plans Committee Chairperson Todd Tauzer moderated.

Using the issue brief as a starting point, Tauzer laid the groundwork of the discussion in going over the basics of pension funding and a funded ratio. Funded ratios move in economic cycles and can be affected by assumption changes, and are also subject to varying asset valuations and liability measurements, he said.

Plan projections go beyond a point in time measurement and can illustrate plan trajectory, which is a more robust indicator of plan health over time. Nevertheless, funded ratios continue to be used ubiquitously. Tauzer highlighted additional considerations to bring context, like financial health and investment strategy of plan sponsor, history of benefit changes, and adherence to funding policy.

Publication Date: 25 Jan 2022

Publication Site: American Academy of Actuaries