Public Funds Pummeled by Rough Markets

August 16, 2002 ( - Slumping US equity markets haven't left the nation's public pension funds unscathed.

In fact, a new Wilshire Associates study shows that stubborn plunges in the market’s value has left more than half of public pension funds underfunded – up sharply from 31% two years ago.

Three-quarters of the 93 public employee funds studied, which cover teachers, firefighters and other government workers, will soon fall prey to underfunding, according to Wilshire.  Unfunded liabilities at the plans in the study leapt to $94 billion for 2001, up from $50 billion for the prior year, according to a Wall Street Journal report.

It doesn’t take a financial genius to figure out what’s happening: public plans’ median return of -5.8% for the year ending June 30 isn’t going to do the pension plans’ funding level much good.

Bad timing perhaps due to inexperience contributed to the stock-market losses, the WSJ reported. Many public pension plans didn’t dip their toes into the equity market until the past few years, which meant that many were getting into the market at the top.

Moreover, the money intended to fund public pensions is often diverted into other programs — building highways, refurbishing schools, and other needs that elected officials feel are more urgent than providing funding for an IOU that won’t be paid until after the officials themselves have retired.

At the bottom of the barrel, according to the Wilshire study were the:

  • West Virginia Teachers’ Retirement System, the worst off, with assets covering just 21% of its liabilities.
  • Oklahoma Teachers’ Retirement System at a 52% funded level
  • Indiana Teachers’ Retirement Fund with assets to cover 43% of liabilities.

However, not every public pension fund is struggling.  According to the WSJ: Florida, Arizona and New Jersey actually have a cash surplus.