93 Percent of Funds are Underfunded
Local government pension plans saw an eight percent jump in their aggregate funding ratio from 2010 to 2011, according to Wilshire Associates Incorporated (Wilshire®), a diversified global financial services firm. The findings are included in Wilshire Consulting’s tenth report on the financial condition of 106 city- and county-sponsored defined benefit retirement plans. Of these, 103 systems reported actuarial values on or after June 30, 2011 with the remaining 3 systems last reporting before June 30, 2011.
“Wilshire Consulting estimates that the ratio of pension assets-to-liabilities, or funding ratio, for all 106 city and county pension plans included in the study was 80 percent in 2011, higher than the 72 percent for all plans in 2010," said Russ Walker, vice president, Wilshire Associates and a member of the Investment Research Group of Wilshire Consulting. “Strong investment performance from early 2009 to the second quarter of 2011 fueled aggregate plan asset growth that outpaced the aggregate growth in plan liabilities.”
For the 103 city and county retirement systems which reported actuarial data on or after June 30, 2011, pension assets and liabilities were $367.8 billion and $461.1 billion, respectively. The ratio of pension assets-to-liabilities, or funding ratio, for all 103 city and county pension plans was 80 percent in 2011, up from 73 percent for the same 103 plans in 2010.
“Of the 103 city and county retirement systems which reported actuarial data on or after June 30, 2011, pension assets rose by 15 percent, or $46.6 billion, from $321.1 billion in 2010 to $367.8 billion in 2011, while liabilities grew 4 percent, or $18.4 billion, from $442.7 billion to $461.1 billion,” Walker noted. “The strong growth in asset values combined with lesser growth in the value of liabilities for the 103 city and county pension plans led to a decrease in the aggregate shortfall, as the -$121.5 billion shortfall in 2010 contracted to a -$93.3 billion shortfall in 2011.”
Fully 93 percent of the 103 city and county retirement systems which reported actuarial data for 2011, have market value of assets less than pension liabilities, or are underfunded. The aggregate ratio of pension assets-to-liabilities, or funding ratio, for all underfunded plans is 73 percent.
City and county pension portfolios have a 61.8 percent average allocation to equities (including real estate and private equity) and a 38.2 percent allocation to fixed income. The 61.8 percent equity allocation is lower than the 66.3 percent equity allocation five years prior in 2006.
“Asset allocation varies widely by city and county retirement system,” Walker said. “Twenty-nine of the 106 retirement systems have total allocations to equity that equal or exceed 70 percent, and seventeen systems have equity allocations below 50 percent. The 25th and 75th percentile range for equity allocation is 56 percent to 71 percent.”