Loop Capital: State, local pension plan funding drops in 2012

State pension plans' funded status dropped two percentage points in fiscal year 2012 as only five states reported improved funding ratios, according to the 11th annual public pension funding review by Loop Capital Markets.

The vast majority of the data is as of June 30, 2012, from comprehensive annual financial reports. Loop Capital analyzed 247 state pension funds and 77 local funds. Forty states saw their funded status decrease by an average of 2.6 percentage points.

It was a similar story for states paying the actuarially required contribution. Seventeen states increased the percentage of the ARC paid, 21 decreased it and 10 did not change the ARC payment. Most states were relatively close to last year's ARC levels. Some of the larger changes were North Carolina paying 100% of the ARC, compared to 81% in 2011; Kentucky decreasing to 74% from 114%; and Florida decreasing to 60% from 83%.

“We wanted continued improvement, but didn't necessarily see that,” said Chris Mier, managing director of the analytical services division. “There's a little stagnation year over year. More (states) are struggling with their ARC payments than we would've thought.”

Forty states have enacted pension reform, with the majority having done so over the last three years. However, Mr. Mier said most of the reforms are for new employees, so the savings are small for the time being.

Most of the top and bottom state and local plans, by several metrics, remained in the same positions in 2012. Illinois, Chicago and Philadelphia continue to have the lowest figures, both in funded status and ARC payments. Illinois' plans were just 41% funded, only slightly worse than Chicago's at 45%. Philadelphia's plans were only 50% funded.

Fourteen states had a funded status of 80% or better, led by Wisconsin at 100% and Washington, 97%. Among cities, Washington, D.C., was the best at 105%. Both Detroit and San Antonio were at 90% or better for local plans.

Mr. Mier said he gets the sense states that are struggling are not fine-tuning their plans. When looking at the economic debt of states, which includes state bonded debt, pension burden and budget deficit, nine of the 12 most in-debted states in 2005 are still in the bottom quartile. The same figure holds true for the top quartile.

“From a macro debt standpoint, it's amazing how little movement there is,” Mr. Mier said.