Contributions and Asset Returns Give State Pensions a Positive 2018

Wilshire Consulting also reports significant changes to state pensions’ allocations to equity and real assets over the past decade.

The funding ratio of state pension plans rose 1.7 percentage points to 72.2% in fiscal year 2018, according to Wilshire Consulting, the institutional investment advisory and outsourced chief investment officer (OCIO) business unit of Wilshire Associates Incorporated.

“Benefit accruals and interest cost decreased the funded ratio by nearly six percentage points, but this was more than offset by total contributions and asset returns, which increased the funded ratio by over nine percentage points,” says Ned McGuire, managing director and a member of the Pension Risk Solutions Group of Wilshire Consulting. “The biggest year-over-year change has been the increase in plans with funded ratios between 70% and 80%.”

According to the “2019 Wilshire Consulting Report on State Retirement Systems: Funding Levels and Asset Allocation,” Wilshire estimates that the aggregate Total Pension Liability (TPL) increased to $4,277.7 billion as of fiscal year end 2018 up more than 3% from $4,141.3 billion as of fiscal year end 2017. The two largest factors of the annual increase in aggregate TPL were continued annual benefit accruals, i.e. service cost and interest cost. Service Cost, or continued annual benefit accruals, is estimated to have increased the TPL by 1.91%. Interest cost is similar to time value of money and is approximately equal to the discount rate as a percentage of the beginning of year TPL. The increase due to interest cost is estimated to be 7.04% for fiscal year-end 2018.

Wilshire estimates that the aggregate assets increased to $3,087.5 billion as of fiscal year end 2018, an increase of close to 6% from $2,917.9 billion as of fiscal year end 2017. Continued robust investment returns and contributions drove asset values higher for the year. Contributions increased the asset value by 4.86% for the year, with nearly 30% coming from plan participants. Investment income increased the asset value by 8.87% for the year.

Discount rates have trended lower over the past several years. This trend continued this year as nearly half of the plans studied lowered their discount rate. The range for discount rates in 2018 was 3.95% to 8.00% with a median of 7.25%, which is the same as last year.

Asset allocation varies greatly by retirement system. In aggregate, state pension plans had allocations to equity, including private equity, equal to 57.8% in 2018. Allocations to fixed income were equal to 23.7%, with the remaining 18.5% allocated to real assets, alternatives and cash.


Over the past ten years, the total allocation to equity has declined by nearly five percentage points. Interestingly, the allocation to private equity has increased by over four and one-half percentage points with the allocation to U.S. Equity declining by nearly nine percentage points. The other significant change has been the increased allocation to total real assets such as real estate.


The 2019 report is based upon data gathered by Wilshire Consulting from the most recent financial and actuarial reports issued by 134 retirement systems sponsored by the 50 states and the District of Columbia. Of the 134 systems studied, 106 systems reported actuarial values on or after June 30, 2018, and the remaining 28 systems last reported prior to that date.