The funding level for city and county pension plans reversed two consecutive years of declines in fiscal 2017, rising to 71%, up from 67% the year before, according to Wilshire Consulting.
The “Wilshire 2018 Report on City & County Retirement Systems: Funding Levels and Asset Allocations” is based on information from 107 city and county retirement systems.
“The increase in global equity values for the 12-month period ending June 30, 2017 was a primary driver of the improved funding levels,” says Ned McGuire, managing director and a member of the Pension Risk Solutions Group at Wilshire Consulting. “Robust investment returns and contributions also drove asset values higher for the year. With that, we found that 93% of the plans in this year’s study have market value of assets less than pension liabilities or are underfunded.”
In the aggregate, pension liabilities grew by 4%, from $697.3 billion in 2016 to $725.4 billion in 2017. Despite the increase in aggregate liabilities, pension plans saw a decrease in aggregate shortfall by $22.7 billion, from $233.3 billion to $210.6 billion. This decline in the aggregate shortfall is the result of the significant increase in aggregate assets by over 10%, from $464.0 billion in 2016 to $518.8 billion in 2017. The estimated aggregate value is the highest since Wilshire began reporting on city- and county-sponsored retirement system funding levels 16 years ago.
“Discount rates have trended lower over the past several years and continued for this year’s study, as nearly half of the plans lowered their discount rate,” McGuire adds. “The range for discount rates this year is 5.13% to 8.50%, with a median of 7.25%, which is down 25 basis points from last year.”
On average, city and county pension portfolios have a 64.3% allocation to equities, including real estate and private equity, a 24.7% allocation to fixed income, and an 11% allocation to other assets. This equity allocation is slightly lower than the 65.9% equity allocation a decade earlier in 2007.