Wilshire: Public Pension Landscape Still Bleak

March 12, 2003 (PLANSPONSOR.com) - When Wilshire Associates researchers recently looked out over the state pension fund landscape, the view was indeed a bleak one.

A few facts help paint the grim picture:

  • Some 79% of all state plans are now underfunded – up dramatically from 31% in 2000 and 51% in 2001 – the highest since 1990. By comparison, Wilshire estimates private pension plans had a combined 86% funding ratio as of December 31, 2002.
  • State plans went from being overfunded by a combined $112 billion in 2001 to a $180-billion shortfall in 2002.
  • The funding ratio for all state plans nosedived from 106% in 2001 to 91% in 2002 ($1.8 trillion in assets for $1.9 trillion in liabilities). Wilshire predicts the ratio will drop again in 2003 to 85%.
  • Only nine states have assets that exceed liabilities – down from 23 states in 2001.

In all, it is “a story of a rapidly deteriorating financial health for state retirement systems over the last two years,” that will take two or three times the amount of employer contributions over the next several years in order to turn around, the Wilshire researchers wrote in their report.

On the Other Hand

On the other hand, it is easy to draw a muddled picture from aggregate results.   Of the 123 programs included in the Wilshire report, 28 had a ratio of assets to liabilities that exceeded 100%, even limited to a current snapshot.   Another 28 had a ratio of 90-99%, and another 29 were between 80% and 89%.   In  response to Wilshire’s last report on the subject, Norman L. Jones, F.S.A., President & Chief Actuary and Paul Zorn, Director of Governmental Research at consultant/actuary Gabriel, Roeder, Smith cautioned that “When people outside the pension profession hear the term “underfunded” they are likely to assume the plan does not have the assets required to pay current benefits or that actuarially determined contributions have not been made.”  

By way of further illustration, the letter noted,” “If almost 90% of U.S. homeowners had paid off 80% of their mortgages and had another 20 years to pay off the remainder, it would be cause for celebration rather than concern.”      

Indeed, while documenting the pervasive funding issues at many plans, the Wilshire report contends that some state retirement programs are in relatively good shape. Leading the funding charge among the strongest plans as measured by the percentage of assets compared to liabilities were (PERS funds are state employees’ systems, STRS denotes teachers’ programs, RS means a combined fund):

  • Texas LECOSRF, 129%
  • Georgia PERS, 127%
  • Wisconsin RS, 126%
  • North Carolina PERS, 118%
  • New York STRS, 117%.

The at the other end of the list were the five weakest:

  • West Virginia STRS, 21%
  • Indiana STRS, 43%
  • Oklahoma, 44%
  • Illinois STRS, 52%
  • Illinois PERS, 52%.

As measured by assets minus liabilities, Wisconsin came out on top with $13.6 billion (though that was based on 1999 data from the fund, according to Wilshire), followed by North Carolina ($7.7 billion), California ($5.6 billion), Georgia ($5.5 billion), and New York ($4.4 billion). For the purposes of this measure, Wilshire combined the totals for states with more than one public plan.

The worst performers were Illinois (-$34.9 billion), Ohio (-$22 billion), Texas (-$19.4 billion), Oregon (-$10.8 billion), and Oklahoma (-$9.7 billion).

Wilshire said the public plans’ combined asset allocation was:

  • US equity, 42.3%
  • Non-US equity, 12.9%
  • US bonds, 35.2%
  • Non-US bonds, 1.4%
  • Real Estate, 4.0%
  • Private equity, 4.2%.