The funding ratio of 134 state defined benefit plans rose three percentage points to 75% in the fiscal year ended June 30, according to a report from Wilshire Consulting.
The improvement in the funding ratio over the period comes from a strong rally by global equity markets in the year ended June 30, outdistancing the growth in pension liabilities as well as weaker global fixed-income markets.
For the 111 state retirement systems that reported actuarial data for 2013, pension assets grew to $2.12 trillion as of June 30, an 8% increase over the previous year. Liabilities for the plans totaled $2.9 trillion as of June 30, an increase of just 2.6% from the previous year.
“The improvement is steady,” said Russell J. Walker, Wilshire vice president and co-author of the report, in a telephone interview. “The liabilities are continuing to grow — not at an alarming rate — but they do continue to grow. The funding statuses are improving. They still have some ground to cover to achieve fully funded status. Some of that is going to come from asset strategy and asset management, and some will have to come from employer contributions.”
The report also studied the asset allocation of state retirement systems and shows the movement into a more global focus in their asset allocations over the past 10 years, along with higher allocations to alternatives.
“What we are seeing over these last 10 years is continuation of the trend to decrease exposure to U.S. assets,” Mr. Walker said, “specifically U.S. public equity (and) U.S. public fixed income and movement into global assets, and certainly somewhat higher exposure to alternatives. Private equity exposure has increased fairly steadily over those 10 years.”
The average allocation to U.S. equities in 2013 was 28.1%, compared to 42.7% in 2003, while the average non-U.S. equity allocation was 20.4% in 2013 compared to 13.3% in 2003. The average allocation to domestic fixed income dropped to 22.6% in 2013 compared to 33.6% in 2003.
Private equity increased to 9.2% from 4.7% and real estate increased to 7.4% from 4.2% in that same time period.
The “Wilshire 2014 Report on State Retirement Systems: Finding Levels and Asset Allocation” also used data from 23 state retirement systems reporting actuarial data before June 30, 2013.
