Wilshire Study Paints Picture of Recession's Effect on Pension Funding
Wilshire Consulting said it estimates that the funding ratio for the 125 state pension plans it studied was 65% in 2009, down sharply from an estimated 85% in 2008. The study includes 125 state retirement systems, of which 57 reported actuarial values on or after June 30, 2009, and 68 reported before June 30, 2009.
For the 57 state retirement systems that reported actuarial data for 2009, pension assets declined by 21.4%, or $175.3 billion, from $818.6 billion in 2008 to $643.3 billion in 2009, while liabilities grew 5.6%, or $57.6 billion, from $1,032.6 billion in 2008 to $1,090.2 billion in 2009. The report said this led to a significant increase in the aggregate shortfall, as the $214 billion shortfall in 2008 widened to a $446.9 billion shortfall in 2009.
Of the 57 state retirement systems that reported actuarial data for 2009, 100% are underfunded with an average ratio of assets-to-liabilities equal to 58%.
Wilshire noted that since the depressed market levels of June 30, 2009, global equity markets have rallied 19.5% in the eight months through February 26, 2010, which would result in higher funding ratios now.
For the 107 state retirement systems that reported actuarial data for 2008, pension assets and liabilities were $1,601.2 billion and $2,025.3 billion, respectively. The funding ratio for all 107 state pension plans was 79% in 2008.
Eighty-nine percent of these 107 state retirement systems are underfunded with an average ratio of assets-to-liabilities equal to 74%.
Wilshire’s study found that state pension portfolios have, on average, a 66.8% allocation to equities – including real estate and private equity – and a 33.2% allocation to fixed income, but asset allocation varies widely by retirement system. Thirteen of 125 retirement systems have allocations to equity that equal or exceed 75%, and five systems have an equity allocation below 50%. The 25th and 75th percentile range for equity allocation is 61.9% to 72.6%.
Wilshire said it forecasts a long-term median plan return equal to 6.9% per annum, which is below the median actuarial interest rate assumption of 8%.
The study report is here.