U.S. public plan funding slips, asset values rise in fiscal 2011

Funding levels for the largest U.S. public retirement systems dipped 1.2 percentage points to 75.8% in fiscal year 2011 while the actuarial value of assets grew 2.7% to $2.65 trillion, according to the Public Fund Survey sponsored by the National Association of State Retirement Administrators and the National Council on Teacher Retirement.

The median investment return was 21% for plans whose fiscal years ended June 30, 2011, roughly three-fourths of those surveyed. Those whose fiscal years ended Dec. 31, 2011, saw a median return of less than 1%, because of poor market returns in the second half of last year.

The aggregate value of liabilities in the fiscal year grew at a modest pace of 3.6%, to $3.49 trillion from $3.37 trillion. That uptick was attributed to many plans reducing their investment return assumptions, reducing the median assumption to 7.8% from 8%.

The survey covers 126 state and local government retirement systems and is based primarily on their annual financial reports. Nearly one-third, 38 plans, saw their funding levels go up in fiscal 2011, largely because of reduced benefits.

“I believe that funding levels are at or near their low point by the end of fiscal 2011, and we are beginning to see some green shoots in terms of improved funding levels for the first time in several years,” said Keith Brainard, NASRA research director, in an interview.

Mr. Brainard said that most plans are nearing the end of absorbing investment losses of 2008 and 2009. “As investment markets return to normal, it's reasonable to expect to see funding levels improve. (The data) also illustrates the importance of investments on the long-term health of these plans,” he said.