Funding Levels Plummeted for City and County Retirement Systems

According to the research report, for the 73 city and county retirement systems which reported actuarial data on or after June 30, 2008, pension assets and liabilities were $214.4 billion and $274.3 billion, respectively. The funding ratio for these 73 city and county pension plans was 78% in 2008, down from 96% for the same 73 plans in 2007.

The 73 systems which saw pension assets fall by 14%, or -$33.8 billion, from $248.1 billion in 2007 to $214.4 billion in 2008, while liabilities grew 6%, or $15.4 billion, from $258.9 billion to $274.3 billion. This led to a significant increase in the aggregate shortfall, from -$10.8 billion in 2007 to -$59.9 billion in 2008, the report said.

Of the 73 city and county retirement systems which reported actuarial data for 2008, 89% have market value of assets less than pension liabilities, or are underfunded. The funding ratio for all underfunded plans is 77%.

Wilshire found that city and county pension portfolios have a 63.6% average allocation to equities, including 39.4% to U.S. Equity, 15.8% to non-U.S. Equity, 6.5% to real estate, and 1.9% to private equity. The average 36.4% allocation to fixed income includes 27.3% to U.S. Bonds, 1.4% to non-U.S. Bonds, and 7.7% to other fixed income vehicles.

Asset allocation varies widely by city and county retirement system. Thirty of the 104 retirement systems have allocations to equity that equal or exceed 70%, and eight systems have equity allocations below 50%.

Wilshire said it forecasts an annual long-term median return on city and county pension assets of 7.2% – 0.8 percentage points below the average actuarial interest rate assumption of 8%. Using Wilshire’s long-term return and risk forecasts, only two of the 104 city and county retirement systems are expected to earn long-term asset returns that equal or exceed their actuarial interest rate assumption – down from the eleven systems that were expected to earn long-term returns that equaled or exceeded their actuarial interest rate assumption in last year’s report.