The Wilshire Consulting “2013 Report on State Retirement Systems: Funding Levels and Asset Allocation”—based on data gathered by Wilshire from the most recent financial and actuarial reports provided by 134 retirement systems sponsored by the 50 states and the District of Columbia—shows the funding level dropped to 73%, from 77% in 2011. The study includes 109 systems that reported actuarial values on or after June 30, 2012, and 25 systems that last reported prior to that date.
“The deterioration in the funding ratio was fueled by global stock market volatility in the twelve months ending June 30, 2012,” said Russ Walker, vice president, Wilshire Associates, and an author of the report. “Unfortunately, growth in fund assets could not keep pace with growth in plan liabilities over fiscal 2012. For the 109 state retirement systems that reported actuarial data for 2012, pension assets and liabilities were $1,825.9 billion and $2,660.1 billion, respectively. The funding ratio for these 109 state pension plans was 69% in 2012, down from 73% for the same plans in 2011.”For the 109 state retirement systems that reported actuarial data for 2012, pension assets shrank by 1.2%, or $21.7 billion, from $1,847.6 billion in 2011 to $1,825.9 billion in 2012 while liabilities grew 4.8%, or $122.2 billion, from $2,537.9 billion in 2011 to $2,660.1 billion in 2012. The continued steady growth in liabilities for the 109 state pension plans led to an increase in the plans’ aggregate shortfall, as the $690.3 billion shortfall in 2011 grew to a $834.2 billion shortfall in 2012.
"Of the 109 state retirement systems that reported actuarial data for 2012, 95% have market value of assets less than pension liabilities or are underfunded. The average underfunded plan has a ratio of assets-to-liabilities equal to 68%," Walker said.
Walker noted: "State pension portfolios have, on average, a 64.8% allocation to equities—including real estate and private equity—and a 35.2% allocation to fixed income and other nonequity assets."
The report shows that asset allocation varies by retirement system. Twenty-one of 134 retirement systems have allocations to equity that equal or exceed 75%, and 12 systems have an equity allocation below 50%. The 25th and 75th percentile range for equity allocation is 60.2% to 72.5%.Wilshire forecasts a long-term median plan return equal to 6.9% per annum, which is 0.9 percentage points below the median actuarial interest rate assumption of 7.8%. One should note that Wilshire's assumptions range over a conservative 10-plus-year time horizon, while pension plan interest rate assumptions typically project over 20 to 30 years.
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