Wilshire Consulting estimates, of the 126 state retirement systems included in the study, the ratio of pension assets-to-liabilities, or funding ratio, for the plans was 77% in 2011, up from an estimated 69% in 2010. Wilshire states this improvement in funding ratio was fueled by strong global stock market performance in the 12 months ending June 30, 2011. Growth in fund assets managed to outpace growth in plan liabilities over fiscal 2011.
Other findings from the study include:
• For the 102 state retirement systems that reported actuarial data for 2011, pension assets and liabilities were $2,002.6 billion and $2,693.9 billion, respectively. The funding ratio for these 102 state pension plans was 74% in 2011, up from 66% for the same plans in 2010.
• For the 102 state retirement systems that reported actuarial data for 2011, pension assets grew by 16.4%, or $282.8 billion, from $1,719.8 billion in 2010 to $2002.6 billion in 2011, while liabilities grew 3.3%, or $84.9 billion, from $2,609.0 billion in 2010 to $2,693.9 billion in 2011. The increase in asset values offset the continued steady growth in liabilities for the 102 state pension plans and led to a drop in the aggregate shortfall, as the -$889.2 billion shortfall in 2010 narrowed to a -$691.3 billion shortfall in 2011.
• For the 126 state retirement systems that reported actuarial data for 2010, pension assets and liabilities in that year were $2216.9 billion and $3,225.2 billion, respectively. The funding ratio for these 126 state pension plans was 69% in 2010.
• Of the 102 state retirement systems that reported actuarial data for 2011, 90% 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 71%.
• Of the 126 state retirement systems that reported actuarial data for 2010, 98% were underfunded. The average underfunded plan has a ratio of assets-to-liabilities equal to 67%.
• State pension portfolios have, on average, a 65.6% allocation to equities—including real estate and private equity—and a 34.4% allocation to fixed income. The 65.6% equity allocation is higher than the 63.6% equity allocation in 2001 and largely reflects a rotation out of U.S. public equities and into non-U.S. equities, real estate and private equity.
• Asset allocation varies by retirement system. Thirteen of 126 retirement systems have allocations to equity that equal or exceed 75%, and 10 systems have an equity allocation below 50%. The 25th and 75th percentile range for equity allocation is 60.2% to 73.0%.
Wilshire forecasts a long-term median plan return equal to 6.4% per annum, which is 1.6 percentage points below the median actuarial interest rate assumption of 8.0%. Wilshire’s assumptions range over a conservative 10+-year time horizon, while pension plan interest rate assumptions typically project over 20 to 30 years.
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