Public Pension Funding Level Down 1% in 2005

September 28, 2006 ( - The aggregate public pension plan funding level in 2005 was down 1% from 2004, according to a new report.

In its summary of survey findings, the National Association of State Retirement Plan Administrators said that, after four years of declines, public pension funding levels are expected to increase in 2006. As funds incorporate more of the investment gains they have experienced since equity markets began rising in March 2003, actuarial asset values will rise, and are projected to exceed liability growth in FY 06, with the result being an improvement in funding levels, the summary said.

The median annual public pension fund investment return was 11.4% as of June 30, 2006.

The survey found that 78 of the 117 plans studied (66.7%) are funded at 80% or higher. The median funding level for the 117 plans is 84.9%. The median funding level has declined from around 100% in fiscal year 2001 to 85% in fiscal year 2005.

The trend in public pension plans has been a reduced ratio of active participants to annuitants, from 2.46 in 2001 to 2.13 in 2005. Fewer contributing active members creates a more negative cash flow (contributions minus benefit payments and administrative expenses). Of the 87 plans whose external cash flow was measured in 2005, 78 (90%) had a negative external cash flow.

The average asset allocation for public pension plans consisted of 60.3% in equities and 27.8% in domestic fixed income funds. International fixed income funds held 1.4% of public pension fund assets, while real estate held 4.5%, alternative investments held 3.8% and cash and other vehicles held 2.2%.

Contribution rates have inclined sharply since 2002. From 2002 to 2003, contributions to public pension funds increased by 11%, while the rate of increase in 2004 and 2005 was 11.8% and 11.9%, respectively.

The Public Fund Survey can be viewed online at .