Wilshire Consulting’s 2006 Wilshire Report on State Retirement Systems: Funding Levels and Asset Allocation said that the ratio of pension assets to liability in 2005 was 87% – up from 2004’s level of 86%. The company said it examined 125 pension funds for its latest report.
For the 58 state retirement systems which reported actuarial data for 2005, pension assets and liabilities were $612.8 billion and $762.4 billion, respectively. The funding ratio for these 58 state pension plans was 80% in 2005, up from 79% for the same plans in 2004.
Meanwhile, for those same 58 systems which reported actuarial data for 2005, pension assets grew 8.3%, or $47.1 billion, from $565.7 billion in 2004 to $612.8 billion in 2005 while liabilities grew 6.3%, or $45.2 billion, from $717.2 billion to $762.4 billion, Wilshire said.
The slightly faster pace in rising asset values compared with the continued steady growth in liabilities for the 58 state pension plans led to a modest reduction in the aggregate shortfall, as the $151.5 billion shortfall in 2004 narrowed to a $149.6 billion shortfall in 2005, according to the report. For the 104 state retirement systems which reported actuarial data for 2004, pension assets and liabilities were $153.8 billion and $179.9 billion, respectively.
Among the 58 plans, 84% 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 77%. Of the 104 state retirement systems which reported actuarial data for 2004, 87% are underfunded . The average underfunded plan has a ratio of 81%.
Assets and Liabilities
In 2004, pension liabilities for these 58 plans exceeded assets by $151.5 billion and the funding ratio stood at 79%. One year later, assets have risen to $612.8 billion, or 8.3%, while liabilities have grown to $762.4 billion, or 6.3%. The result has been a slight decrease in the difference between assets and liabilities from $151.5 billion to $149.6 billion, a $1.9 billion improvement, and an improvement in the ratio of assets-to-liabilities for these 58 plans from 79% to 80%. In 2000, pension assets for these 58 plans reporting 2005 data exceeded liabilities by $25.2 billion and the funding ratio, or ratio of assets-to-liabilities, stood at 105%.
Over the next five years, assets grew 1.2% while liabilities grew 6.6%, both on an annualized basis. The result has been an increase in the difference between assets and liabilities from $25.2 billion to a negative $149.6 billion and a deterioration in the ratio of assets-to-liabilities for these 58 plans from 105% to 80%, Wilshire said.
Examining the state systems’ holdings, Wilshire said state pension portfolios have a 67.7% average allocation to equities – including real estate and private equity – and a 32.3% allocation to fixed income. The equity allocation is slightly higher than the 65.3% equity allocation in 2001.
However, it was difficult to discern additional asset allocation trends as allocation varied widely by retirement system. Thirty-three of the systems have allocations to equity that equal or exceed 75%, and six systems have equity allocations below 50%. The median allocation is 44.8% to domestic equities and 16% to international equities. The median state pension fund has an expected return, by Wilshire’s estimate, of 7.7%. This is 0.3 percentage points less than the current median actuarial interest rate of 8%.
The study included 125 state retirement systems. Of these, 58 systems reported actuarial values on or after June 30, 2005 and 67 systems reported before June 30, 2005. Twenty-one of these 67 late-reporting systems last reported before June 30, 2004.