Funded ratios using the market value of assets increased modestly in the Milliman 2014 Public Pension Funding Study relative to the 2013 study, largely reflecting strong asset growth. This study generally is based on valuation information from July 1, 2013, or later. The 12-month period from July 2012 to July 2013 saw very strong investment results for most pension plans, with market rates of return well into the upper teens.

This year’s study found that the gap between the recalibrated accrued liability and the sponsor-reported accrued liability widened, from 2.6% in the Milliman 2013 Public Pension Funding Study to 3.8% in 2014. This widening gap in liability mirrors a corresponding widening between the investment return assumptions reported by the plans in the study relative to our independently determined investment return assumptions.

As pension plans have accumulated assets and their member populations have matured over the past several decades, asset volatility ratios have risen. These higher ratios mean that actuarially determined contribution rates are now more sensitive than they once were to investment volatility, despite the use of asset-smoothing methods to help mitigate the impact of market movements.