States' adjusted net pension liabilities totaled $1.3 trillion in fiscal year 2016, up 4.5% from the previous fiscal year, said a report released Wednesday from Moody's Investors Service.
Also, because of poor investment returns — public pension plans reported a median net return of 0.54% for the 12 months ended June 30, 2016 — adjusted pension net liabilities are projected to rise about 21%, to around $1.58 trillion.
However, because of improved investment returns in fiscal year 2017, liability growth might dampen in states' fiscal 2018 financial statements. The median net return for public pension plans was 12.4% for the fiscal year ended June 30, 2017.
What will partly offset those strong investment returns is the continuing drop in the City Pension Liability index, the discount rate in reporting liabilities, which fell to 3.87% on June 30, 2017, from 4.44% on June 30, 2015, according to the report.
Moody's report also noted that about half of states contribute enough to their plans to stem unfunded liability growth even when assumed rates of return are reached. The report used fiscal year 2015 contribution amounts. Among the states whose contributions fell below that threshold were Illinois, Kentucky, New Jersey and Texas. States whose contributions exceeded the amount needed included Michigan, North Carolina, South Dakota and Utah.