Wilshire: City, county pension funding plummets 11 points in 2012

The aggregate funded status of local government pension plans was 69% for the 2012 fiscal year, down 11 percentage points from the previous year, according to a report from Wilshire Associates on 106 city- and county-sponsored defined benefit plans.

Of the plans, 105 reported actuarial values on or after June 30, 2012. One plan had its fiscal year-end April 30 and is not included in much of the data.

Of the 105 plans that reported actuarial values on or after June 30, 2012, the funded status plummeted despite pension assets increasing by 2% to $387 billion for the 105 plans. Liabilities increased at an astronomic 16% rate to $560.6 billion.

“On the liability side, they're growing at a rate that the assets can't keep up with,” said Russell Walker, vice president and co-author of the report, in a telephone interview.

Only six plans reported having a fully funded plan, the same number of plans were less than 50% funded, according to the report. Sixty-nine plans were less than 80% funded, up from 59 the year before.

Mr. Walker said there were not any notable changes in asset allocations from the previous year, but that on a long-term basis, pension funds continue to diversify away from a home-country bias and more into alternatives. Average equity allocations are down about five percentage points in the last five years. U.S. equity is down to 31.9% from 43.2% in the same time period.

Mr. Walker added pension funds want to get a handle on liability growth and that it is likely that funded status improvement will ultimately come from asset growth. He estimated the aggregate funded status could be up to 75% for the fiscal year ended June 30.

“These plans still have large allocations to growth assets,” Mr. Walker said. “For the fiscal year ended June 30, that is where you wanted to be.”