Some states are “headed in the right direction” to improve their funded status in 2012, but other states and many local governments face continuing challenges in the year ahead, according to Loop Capital Markets’ annual pension funds review.
“We see a fair amount of progress. This is no longer a systemic problem, but a problem confined to a relatively small number of states,” Chris Mier, Loop Capital Markets analytical services division managing director, said in a telephone interview.
In the report’s executive summary, the authors anticipate “more aggressive,” pension reform initiatives by state and local governments in 2012.
Next year, public pension plans will also have to deal with sweeping new accounting rules proposed in July 2011 by the Governmental Accounting Standards Board to increase transparency and uniformity among public pension plans. A key change of the proposed rules, which are expected to be finalized in summer 2012, would force public plans to highlight their net unfunded liabilities, which could make plans look less funded and prompt further calls for pension reform.
In its analysis of the 245 largest state pension plans, the report found that the average asset allocation was 49.52% equities, 29.13% fixed income, 4.75% real estate, 3.2% cash and the remainder in other investments.
Of the 149 state plans reporting their funding ratios for 2010, only 56 were more than 80% funded. In fiscal year 2010, 30 states did not make their annual required contribution, compared to 26 states in fiscal 2009 and 23 in fiscal 2008.
For further details, contact Ivan Gulich, senior vice president, via e-mail at [email protected]