Benefits August 31, 2006

NASRA: Public Systems Funding Ratio Drops in 2005

August 31, 2006 (PLANSPONSOR.com) - US public pension systems ended 2005 in a worse funded position than they were the year before, according to a recent survey of 102 systems.
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The National Association of State Retirement Administrators (NASRA), whose membership includes the directors of public retirement systems, found in its annual survey of public funds that they have prefunded more than 86% of their future liabilities, down from the 88.2% in fiscal 2004 (See NASRA: 45 States Have Underfunded Retirement Liabilities).

According to the survey, the public systems collectively have about $2.17 billion in assets to cover about $2.51 billion in liabilities.

The findings by NASRA’s survey closely mirrors those of Wilshire Consulting, which found that the ratio of pension assets to liability in 2005 for 125 pension systems was 87% (See Wilshire: Public Pension Funding Ratios Flat for 2005).

Unlike the private sector, public pension plans lack the safety net of the Pension Benefit Guaranty Corporation – the entity that insures the plans of private companies not able to fund their plans. “The pre-funding of pension obligations by state and local governments is in stark contrast to federal government pension programs, which are not prefunded and subject to appropriation or pay-as-you-go financing,” said Keith Brainard, in the NASRA release.

He added that state and local governments draw most of their revenue from investment earnings – 63% over the last two decades. Some 12% of the revenue comes from employee contributions and 25% from employer contributions.

Rather than only pointing the blame at poor market returns, some have attributed systems funding troubles to politically-driven decisions to hike benefits to employees while scaling back contributions, as in the case of the beleaguered Illinois system (See Feature: Their Own Worst Enemy ). The state has not shed its reputation as being the most underfunded system in the US, posting a funding status of 54.4%, with about $10.4 billion in assets to cover about $19.3 billion in liabilities.

The release of the NASRA report came out as Washington lawmakers flocked to Springfield, Illinois for a US House Subcommittee on Employer-Employee Relations hearing focused on the funding of public pension systems.

Access to the full survey, which gives a system-by-system breakdown, requires free registration at www.publicfundsurvey.org .

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