Administration September 13, 2016
Funding Drops for City and County Retirement Systems
Wilshire Consulting’s 2016 report is based on the most recent financial and actuarial reports of 109 retirement systems.
Reported by Judy Faust Hartnett
The newly released 2016 report from Wilshire Consulting on the funding levels of city and county retirement plans finds that the funding ratio for the city and county pension plans studied was 70% in fiscal year 2015, down 4 percentage points from fiscal year 2014.
The company—the institutional investment advisory and outsourced-CIO business unit of Wilshire Associates—forecasts a median return on city and county pension assets equal to 6% per annum, 1.5% below the median actuarial interest rate assumption of 7.5%. The firm’s standard asset-class assumptions range over a conservative 10-plus-year time horizon, while pension plan interest rate assumptions typically project over 20 to 30 years. Using Wilshire’s 30-year long-term asset class assumptions, the median estimated return would be 7.3%.
“Despite relatively strong performance from U.S. stocks, both an increase in interest rates in the second quarter of 2015 and a stronger U.S. dollar weakened performance of fixed-income and non-U.S. dollar investments during the year, allowing pension liabilities to outpace pension assets in 2015,” notes Russ Walker, vice president, Wilshire Consulting, and a co-author of the report. “With that, we found that, out of the 99 city and county retirement systems that reported actuarial data for 2015, 93% are underfunded with market value of assets less than pension liabilities.”
Of 109 city and county retirement systems, 99 systems reported actuarial values on or after June 30, 2015 and the remaining 10 systems last reported before that date. This is Wilshire’s fourteenth report on the financial condition of city- and county-sponsored defined benefit retirement systems.
The company—the institutional investment advisory and outsourced-CIO business unit of Wilshire Associates—forecasts a median return on city and county pension assets equal to 6% per annum, 1.5% below the median actuarial interest rate assumption of 7.5%. The firm’s standard asset-class assumptions range over a conservative 10-plus-year time horizon, while pension plan interest rate assumptions typically project over 20 to 30 years. Using Wilshire’s 30-year long-term asset class assumptions, the median estimated return would be 7.3%.
“Despite relatively strong performance from U.S. stocks, both an increase in interest rates in the second quarter of 2015 and a stronger U.S. dollar weakened performance of fixed-income and non-U.S. dollar investments during the year, allowing pension liabilities to outpace pension assets in 2015,” notes Russ Walker, vice president, Wilshire Consulting, and a co-author of the report. “With that, we found that, out of the 99 city and county retirement systems that reported actuarial data for 2015, 93% are underfunded with market value of assets less than pension liabilities.”
Of 109 city and county retirement systems, 99 systems reported actuarial values on or after June 30, 2015 and the remaining 10 systems last reported before that date. This is Wilshire’s fourteenth report on the financial condition of city- and county-sponsored defined benefit retirement systems.