State retirement systems’ funded status improved seven percentage points in 2007, according to Wilshire Associates’ annual state pension plan funding and asset allocation report to be released Thursday. Wilshire estimated the aggregate asset-to-liability ratio of the 125 plans studied at 95% in 2007, up from 88% in 2006. The same plans had been 95% funded in aggregate in 2001 before slipping to 81% in 2002 and 2003, according to the report.
State plans have seen a “fairly dramatic shift in asset allocation” in the past five years, said Steven J. Foresti, managing director at Wilshire and one of the study’s authors.
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Equity allocations for the average state plan rose 7.9 percentage points from 61% of total assets in 2002. Average allocations in 2007 were 68.9% equities and 31.1% fixed income. The largest changes came in non-U.S. equity, which grew 5.5 points, to 18.2%, from 12.7% in 2002, and domestic bonds, which dropped to 26.4% from 31.6% in the same period.
Other allocations were: 18.2% non-U.S. equity, 5.2% real estate, 4.6% private equity, 0.9% non-U.S. bonds and 3.7% “other” fixed income.
Wilshire estimated a median long-term annual return of 7.6% on assets, 40 basis points behind the median actuarial interest rate assumption of 8%.
Of the 125 plans tracked, 56 were analyzed using 2007 data, 60 with 2006 data and nine using 2005 data. Aggregate assets of the 56 plans rose 14.7%, or $118.3 billion, to $924.2 billion in 2007. Liabilities increased 6.8%, or $64.3 billion, to $1.01 trillion.
