A news release from Wilshire, which also issues studies of state (See Wilshire: State Pension Systems’ Funding Ratios Improve in 2004 ) and corporate pension funds, said the local plans’ shortfall fell to $17.8 billion in 2004 from $25.2 billion the year before, a $7.4 billion decline. That pushed up the assets-to-liabilities ratio from 84% to 90% as of 2004, Wilshire said.
Pension assets and liabilities were $154.3 billion and $172.1 billion, respectively for the 55 pension systems that provided Wilshire actuarial data on or after June 30, 2004, the news release said. For those systems, pension assets grew 14%, or $18.6 billion, from $135.7 billion in 2003 to $154.3 billion in 2004 while liabilities grew 7%, or $11.2 billion, from $160.9 billion to $172.1 billion.
Of the 55 plans, 73% have market value of assets less than pension liabilities, or are underfunded, Wilshire said . The average underfunded plan has a ratio of assets-to-liabilities equal to 83%. One plan has assets less than 50% of liabilities; four plans have assets less than 70% of liabilities; and 12 plans have assets less than 80% of liabilities. Using actuarial value of assets to determine funding ratios, 46 of the 55 plans, or 84%, have assets below liabilities. Three plans have assets less than 60% of liabilities; four plans have assets less than 70% of liabilities; and 12 plans have assets less than 80% of liabilities, the Wilshire data showed.
Taking a look at the plans’ asset allocations, Wilshire found that city and county pension portfolios have a 66% average allocation to equities – including real estate and private equity – and a 34% allocation to fixed income. The equity allocation is slightly higher than the 65% equity allocation the year before. The higher equity allocation suggests that pension funds remain committed to stocks, real estate, and private equity, Wilshire said.
Asset allocation varies widely by city and county retirement system. Nine of total 104 retirement systems which reported to Wilshire have allocations to equity that equal or exceed 75%, and three systems have equity allocations below 50%.
Wilshire’s findings about the asset shortfall for city and county pension plans are notably higher than state retirement systems. Wilshire estimates that as of December 31, 2004 state pension assets totaled $1.6 trillion, $376 billion less than pension liabilities of $1.976 trillion, resulting in an aggregate funding ratio for state retirement systems of 81%.
Release of the state systems reports, which in recent years have painted a bleak financial picture, has drawn pointed fire from public frund trade groups (See Wilshire Report Comes Up Short – Again: NASRA ). The trade groups contested Wilshire’s findings, claiming the state plans were actually in better shape than Wilshire reported.
Meanwhile, Wilshire data about asset shortfall for city and county pension plans are slightly lower than corporate pension plans. As of December 31, 2004 defined benefit pension assets for S&P 500 companies totaled $1.115 trillion, $99 billion less than pension liabilities of $1.214 trillion, giving an aggregate funding ratio for corporate plans of 92%.
Looking ahead, Wilshire forecasts a long-term annual median return on city and county pension assets equal to 7.2%, which is 0.8% below the median actuarial interest rate assumption of 8%.
Wilshire’s study included 104 city and county retirement systems, including 55 systems reporting actuarial values on or after June 30, 2004 and 49 systems reporting before June 30, 2004. Eleven of these 49 late-reporting systems reported before June 30, 2003.
More information about Wilshire is at http://www.wilshire.com/ .
« CalPERS Changes Outside Manager Hiring