Annual Pension Solvency and Performance Report

This chart tracks pension contribution rates from 2014 to 2023, breaking down the data into four categories: employer contributions (gray), employee contributions (black), amortization costs (blue), and normal costs (yellow). Over the years, employer contributions have steadily increased, especially from 2019 onward, reflecting the growing financial burden on employers to fund pension plans. Employee contributions, on the other hand, have stayed relatively stable, with only a slight uptick in 2023.

Amortization costs, which cover the payments needed to reduce pension plan unfunded liabilities, have seen significant increases since 2018, reflecting the rising challenge of managing pension debt.

Normal costs, representing the cost of benefits earned by employees in the current year, have remained mostly consistent, showing little change in the overall benefit levels of employees during this period.

This chart tracks employer contribution rates from 2014 to 2023 and compares these rates against various amortization benchmarks. These benchmarks represent different periods—10, 15, 20, and 30 years—over which unfunded pension liabilities would be amortized, offering a perspective on how quickly or slowly pension debt is being paid down.

The orange line on the chart shows the actual employer contribution rates over time, starting around 16% in 2015 and gradually increasing.

The blue line represents the “Zero Net Amortization ER Benchmark,” which is the contribution rate needed to cover the normal cost plus the interest on the unfunded actuarial accrued liability (UAAL) without actually reducing the UAAL. This rate stays relatively steady, slightly declining as it approaches 2023.

The black dashed line, representing the most aggressive 10-year amortization benchmark, shows the highest contribution rates throughout the chart, peaking above 30% in 2017-2018 before sharply declining toward 2023.

The gray dashed line, which represents the 15-year amortization benchmark, starts around 28%, increases slightly, peaks in 2018, and then steadily declines through 2023. This line is higher due to the shorter period to pay off the liabilities.

The green dashed line, which represents a 20-year amortization benchmark, is generally higher than the 30-year benchmark, but it shows a moderate decline from 2018 onward, indicating that the required contribution rate decreases as the liabilities are paid down more aggressively.

The chart illustrates the trade-off between the amortization period and required contribution rates. Shorter amortization periods require higher immediate contributions, putting more immediate financial pressure on employers but at the benefit of substantial long-term savings. Longer periods allow for lower, more spread-out contributions, but interest costs on the unfunded liabilities mean employers ultimately pay much more in total payments. Actual employer contributions have increased over the years, showing efforts to fully fund our nation’s pension systems. By 2022 and 2023, these contributions converge with or exceed the benchmarks for the 10, 15, and 20-year amortization periods, suggesting that employers are aligning their contributions with more aggressive funding strategies to reduce unfunded liabilities more quickly.

This chart tracks the net cash flow of a pension fund as a percentage of the market value of assets (MVA) from 2014 to 2023. The net operating cash flow is calculated by subtracting total benefit payments from total contributions. The y-axis represents the net cash flow as a percentage of MVA, ranging from -5.0% to 0.0%, while the x-axis spans the years from 2014 to 2023.

The data show that net operating cash flows have been consistently negative throughout this period. In 2014, the net cash flow was around -2.7% of MVA, and it slightly worsened in the following years, reaching a low of about -2.9% around 2016. After 2016, the chart indicates a gradual improvement in net cash flow, with the percentage rising each year. By 2023, the net cash flow had improved to about -1.7% of MVA.

Negative cash flow is common for pension plans, especially mature ones because the benefit payments to retirees often exceed the contributions from current employees and employers. This doesn’t necessarily indicate a problem, as pension plans are typically designed to rely on investment returns to cover this gap. The improving trend in net cash flow seen in this chart suggests that the gap between contributions and benefit payments has been narrowing, possibly due to increased contributions, reduced benefit payments, or strong investment returns. While the cash flow remains negative, the upward trend is a positive sign, indicating that pension plans are managing their future obligations more effectively over time.