PERS’ unfunded liability grew by $4.3 billion in 2018

PERS’ unfunded liability grew by $4.3 billion in 2018

The number crunchers for Oregon’s public pension system are set to deliver a status check to the system’s board Friday, and the prognosis is not good.

The Public Employees Retirement System, like investors everywhere, had a tough 2018. U.S. stocks’ worst year in a decade was capped by a fourth-quarter plunge that wiped out trillions in wealth and most gains for the year. The pension fund’s full-year return was 0.48 percent, preliminary results show, falling well short of its assumed earnings rate of 7.2 percent.

As a result, system actuary Milliman Inc. estimated, PERS’ unfunded liability grew to $26.6 billion – a $4.3 billion increase – and its funded status declined from 73 cents to 69 cents in assets for every dollar in liabilities.

That’s obviously not good news, but Milliman suggested the situation may actually be worse than it appears. That’s because the system’s 0.48 percent return does not reflect fourth-quarter results for its investments in private equity partnerships, which comprise about 20 percent of the portfolio. Those results always lag by a quarter and therefore won’t be reflected until the end of the first quarter of 2019. The supposition is that private equity valuations will adjust downward, reflecting the 15 percent decline in the overall stock market that took place in the fourth quarter of 2018.

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