Municipal Pensions’ Funding Up in FY 2013

September 15, 2014 ( - Wilshire Consulting estimates that the ratio of pension assets to liabilities, or funding ratio, for the city and county pension plans it studied was 73% in 2013, up 4 percentage points from 2012.

The “Wilshire 2014 Report on City and County Retirement Systems: Funding Levels and Asset Allocation” is based upon data gathered by Wilshire from the most recent financial and actuarial reports available and includes 109 city and county retirement systems. Of these, 105 systems reported actuarial values on or after June 30, 2013, and the remaining four systems last reported before June 30, 2013.

“Of the 105 city and county retirement systems which reported actuarial data for 2013, 90% have market value of assets less than pension liabilities or are underfunded,” says Russ Walker, vice president, Wilshire Associates, and an author of the report.

For the 105 city and county retirement systems that reported actuarial data on or after June 30, 2013, pension assets increased 11%, or $42.3 billion, from $386.9 billion in 2012 to $428.9 billion in fiscal year 2013, while liabilities grew 5%, or $26.2 billion, from $563.5 billion to $589.7 billion. These 105 plans saw their aggregate shortfall decrease $16.1 billion over fiscal year 2013, from -$176.9 billion to -$160.7 billion.

“City and county pension portfolios have a 62.4% average allocation to equities, including real estate and private equity, and a 37.6% allocation to debt and other assets,” Walker notes. “The 62.4% equity allocation is lower than the 63.8% equity allocation five years prior in 2008. Asset allocation varies widely by city and county retirement system. Thirty-four of the 109 retirement systems have total allocations to equity that equal or exceed 70%, and fourteen systems have equity allocations below 50%. The 25th and 75th percentile range for equity allocation is 55% to 72%.”

Wilshire forecasts a long-term median return on city and county pension assets equal to 6.6% per annum. This 6.6% estimate, based on beta-only asset class assumptions and excluding active-management alpha, is below the median actuarial interest-rate assumption of 7.75%. One should note that Wilshire’s assumptions range over a conservative 10-year or longer time horizon, while pension plan interest-rate assumptions typically project over 20 to 30 years.