Wilshire Report Comes Up Short – Again: NASRA

Echoing sentiments relayed last year, the National Association of State Retirement Administrators (NASRA) issued another letter to Wilshire Associates, Inc. last week, raising concerns about the alarmist tone of their newest Report on State Retirement Systems, which again “presents a distorted and misleading view of the fiscal condition of State pension funds.”

A year ago, NASRA President Frank Ready, who is also executive director of the $14 billion Mississippi Public Employees’ Retirement System, referred to the annual Wilshire report as “a marketing piece camouflaged as industry research,” noting that Wilshire has issued similarly inflammatory reports in the past that also employed “selective use of statistics and illusory terminology to paint a bleak picture of the public pension plan universe (see  State Pension Group: Wilshire Research ‘Alarmist’ ).”   At the time NASRA asked Wilshire to reconsider how it presents its  data .

NASRA’s current president, Dave Bergstrom, who is also executive director of the $7.5 billion Minnesota State Retirement System, found little changed in response to the association’s request.   “Years ago, a colleague of mine asked that Wilshire ‘please attempt to make apples-to-apples comparisons,’ characterizing what had been done as simply being fruity,” Bergstrom said, according to a press release.   “Unfortunately, Wilshire refuses to recognize industry standards for reporting and measuring pension funding levels.”

“If you look beyond the hype, Wilshire’s own numbers, even using methodology that paints the darkest picture possible, show that public pension plans as a group are in good financial condition: The median public pension plan has accumulated reserves that are 82% of their current pension obligations, even after the sharp market declines of recent years,” Bergstrom said in a statement.  

Some of the specific concerns cited by Bergstrom include:

• Wilshire's use of market, rather than actuarial, values for plan assets , in spite of the fact that most public pension plans measure their assets by actuarial value, according to NASRA.   The actuarial funding ratio is derived by dividing the value of a pension plan's assets by its actuarial liabilities accrued year to date.   A report issued by NASRA last September revealed that, on that basis, more than half of 93 of the nation's largest state pension plans were fully funded, while Wilshire's data suggested that 79% of all state plans were underfunded (see  New Study Offers "Fresh" Perspective on Pension Funding Gap ).

• The comparison of plans against one another across a wide range of time periods , even though market fluctuations can dramatically change plan funding levels from one valuation date to the next, according to NASRA.   Wilshire's most recent report did note that half of the pension systems in its most recent analysis reported values between June 30, 2002, and June 30, 2003 - a point at which much of the 2003 upswing in market values was likely not taken into account.   While not explicitly set apart in the funding ratio ranking table, Wilshire's report did note, because many state pension plans report with a significant time lag, the funding ratios in its study "do not fully reflect the recent bull market in stocks (see  State Retirement Funding Gap Doubles: Wilshire )."   In presenting its most recent data, Wilshire acknowledged that the aggregate data can obscure important distinctions.   "It's important to note that the fiscal health of retirement plans varies widely," said Julia Bonafede, senior managing director of Wilshire Associates, in a press release accompanying the report.

• The report'sfailure to describe the meaning and consequences of the term "underfunding ." NASRA notes that "the actuarial and financial implications for a plan funded at 95% are much different than those for a plan with a funding level of 65%."

• Ranking states by dollars rather than percentages , which results in a bias against larger states, which, almost by definition, have larger funds with larger dollar value gaps.   As NASRA notes, "According to this methodology, large states will look as if they are in far worse financial shape compared to small states, even if their funding levels are identical."

Taking issue with another element of the Wilshire report, Bergstrom also said that "Measuring unfunded liabilities against states' general funds ignores the fact that fiscal arrangements vary widely. Presenting such a ranking is terribly misleading."

Bergstrom again urged Wilshire to reassess the manner in which they present data for statewide public retirement systems. "In doing so," he said, "our members—the directors and administrators of many statewide public retirement systems - will be better served."

NASRA members are the directors and administrators of the nation's state employee retirement plans and most of the largest statewide public retirement systems, which together provide pension coverage for more than 15 million working and retired public employees, and oversee assets exceeding $1.5 trillion.