According to the 2013 edition of its research report, “The State of State Pension Plans,” Wisconsin’s funded ratio is 99.9%, a 0.1% increase from last year, and the liability per capita is $18, which fell $3 from 2012. Illinois continues to have the weakest-funded state pension system, with a 40.4% funded ratio, falling 3% since last year, and a liability of $7,421 per capita, an increase of more than $900 from 2012.
Puerto Rico’s pension system is weaker than Illinois’, with a funded ratio of 11.2% and a liability of more than $8,900 per capita. According to the commonwealth, all three of its pension plans are projected to deplete their assets over the next few years, but recently passed reforms may mitigate the losses.
Twenty-six states and Puerto Rico fall below Morningstar’s fiscally sound threshold of a 70% funded ratio. Puerto Rico has the lowest funded ratio; 12 states have an aggregate funded ratio of 80% or more, led by Wisconsin for the second year in a row.
Morningstar’s pension plan analysis focused on two key metrics:
• Funded ratio: the ability of a pension plan to meet its obligations, which is calculated by dividing the pension plan’s assets by its liabilities, and
• Unfunded actuarial accrued liability (UAAL) per capita: the unfunded liability per capita, representing the amount each person in the state would need to pay to fully fund this unfunded liability.
Seven states have a UAAL of less than $100 per capita. Wisconsin has the lowest UAAL per capita for the second year in a row. Thirteen states have a UAAL of less than $1,500 per capita, which is Morningstar’s threshold for “Good” unfunded liability levels, and Alaska had the highest UAAL per capita for the second year in a row, currently more than $10,000.
The report also includes a discussion of trends, pension reform, recent bankruptcies, shortcomings in disclosure and transparency, and federal legislation. Morningstar analysts also compiled aggregate pension data by state, including assets, funded ratio and UAAL per capita, along with individual pension plan data by state.
An excerpt of “The State of State Pension Plans 2013” is available at http://global.morningstar.com/Pensions2013. For a video and article highlighting this year’s research findings, please visit http://morningstar.com/goto/StatePension. For more information about Morningstar’s analysis of government pension plans, the company’s “State and Local Pensions 101” overview is available at http://global.morningstar.com/pensions101.