State public pension plans had a mean funding ratio of 75% in 2009, down from 80% a year earlier, according to data reviewed by Standard & Poor's for 2009 and 2010.
The report, “U.S. States' Pension Funded Ratios Drift Downward,” notes that pension liabilities are not currently jeopardizing any state's ability to meet its debt obligations, but failure to act could have long-term consequences.
“We view pensions as a longer-term challenge for states,” Robin Prunty, a director in S&P's public finance ratings group and co-author of the report, said in a telephone interview.
She noted that New Jersey's credit rating was dropped to AA- from AA on Feb. 9, in part because of the funded status of its state pensions. The report shows that New Jersey state plans were a combined 66% funded in 2009.
Also in the report:
• The phase-in of market losses in 2008 has put “upward pressure” on contributions beginning in 2009;
• Pension reform efforts in several states could help funded ratios in the long term, but the potential for immediate or near-term relief to funding ratios remains to be seen; and
• The deteriorating funding ratios at public pension plans could serve as a source for overall credit pressure for states.