Wilshire: State Pension Systems' Funding Ratios Improve in 2004

March 14, 2005 (PLANSPONSOR.com) - Reversing the dour findings of 2003, a Wilshire Research study reports that the funding ratio for the most recently reporting state retirement systems is up 6% over last year's figure.

For 64 state pension funds who reported actuarial values on or after June 30, 2004, the average funding ratio is now at 83%, up from last year’s 77% (See State Retirement Funding Gap Doubles: Wilshire ). The report, released annually by Wilshire Associates, states that the pension assets and liabilities for these 64 plans are $778.9 billion and $942.3 billion, respectively.

In 2004, the state pension systems under scrutiny had impressive growth, with a 14% asset enlargement seen on average. This amounted to $97.3 billion in new assets and is a significant figure when compared to a liability growth of only 6%. Because of the combined figures, funding liabilities shrank from $207.7 billion in 2003 to $163.4 billion in 2004, according to the report.

For the 109 state pension plans who provided Wilshire with actuarial data from 2003 (16 did not), the funding ratio is 81%.

Not all Rainbows and Butterflies…

The report isn’t all roses for the state pension systems, however. Wilshire states that state pension plans are worse off than corporate pension plans on average; the company estimates that the funding ratio for S&P 500 companies averages 89%, well above the state pension plan figure of 81%.

The report also indicates that the funding status of state systems is similar to that of city and county retirement systems. With assets totaling $148.6 billion and liabilities of $179.2 billion, the report indicates that city and county pension funding ratios average out to 83%.

Also on the negative side of the report: underfunding is still a widespread problem for state retirement systems who reported actuarial values in 2004. Eighty-four percent of plans are underfunded, according to the report, and of these, the average funding ratio is 77%. However, compared to the year before – when 109 offered up funding information – this is an improvement. In that year, 94% were underfunded. However, of these, the average funding ratio was a slightly higher 79%.

Asset Allocation

State pension plans included in the study have an average equity allocation of 67%, a figure that includes real estate and private equity holdings. Thirty-three percent of assets are, on average, given to fixed-income. This indicates a slight increase in equity holdings, which was at 65% in the prior year.

These averages are slightly misleading however, because 26 of the 125 retirement systems in the study have equity allocation exceeding 75%. Six systems had equity allocations below 50%.

Looking over the long term, the picture is not so rosy either. Wilshire, looking forward, estimates that the long-term return on state pension assets will be about 7.5% annually, 0.5% below the 8% actuarial interest rate assumption put forth by the company.

The report, released annually, often draws ire from the state pension systems that it puts under the microscope. Last year, e choing sentiments relayed over previous years, the National Association of State Retirement Administrators (NASRA) issued a letter to Wilshire Associates raising concerns about the alarmist tone of the report, which they said “present[ed] a distorted and misleading view of the fiscal condition of state pension funds,” (See  Wilshire Report Comes Up Short – Again: NASRA ).