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Pension Funds

State pension funding falls 4 points in fiscal year 2016

The aggregate funded status of 131 state pension plans fell 4 percentage points to 69% in fiscal year 2016, said Wilshire Consulting's most recent annual state pension funding report released Monday.

Of the 131 defined benefit plans analyzed, fiscal year 2016 data were available for 103. The remaining pension funds' 2016 data were estimated. Most of the plans analyzed had a fiscal year that ended June 30.

For the 103 plans that provided fiscal year 2016 data, pension fund assets declined 1.8% over the year to $2.35 trillion, while liabilities increased 5.4% to $3.53 trillion, for a funding ratio of 66.6%, down from 71% for these same plans in 2015.

"U.S. stock performance was low in the fiscal year ending June 30, 2016, while a strengthening U.S. dollar dampened already negative performance of non-U.S. dollar investments," said Ned McGuire, vice president and a member of the pension risk solutions group at Wilshire Consulting, in a news release on the results. "Ultimately, the net effect was that the difference between pension liabilities and pension assets grew during the fiscal year."

Wilshire's report, which also looks at plans' asset allocation, found movement out of U.S. equities and into other growth assets such as non-U.S. equities, real estate and private equity over the past decade.

The average allocation to U.S. equities in 2016 was 27.4%, down 14.9 percentage points from 2006. Over the same time period, the average allocation to non-U.S. equities rose 1.5 percentage points to 18.6% in 2016, real estate rose 3.9 percentage points to 8.7%, and private equity rose 5.7 percentage points to 10.1%.

Looking at the other asset classes that Wilshire tracks, plans' average allocation to U.S. fixed income fell 4.9 percentage points during the period to 22.3%, while the average allocation to non-U.S. fixed income and other non-equity assets (cash and cash equivalents, commodities, hedge funds and other absolute-return strategies) rose 1.5 and 7.2 percentage points, respectively, to 2.4% and 10.5%.