While the funding ratios of U.S. state defined benefit pension plans improved in fiscal year 2013, significant challenges remain, according to a Fitch Ratings report.
The credit rating agency's report reveals that median reported funding ratios of 97 state plans based on actuarial valuations rose to 71.6% in 2013, from 69.1% in 2012. The gains are attributed to strong investment returns that were generally ahead of plan discount rate assumptions.
Despite the gain, actual contributions to plans still run short of actuarially calculated annual required contributions, with only 37 of the 91 state plans that provided this information receiving at least 100% of those required contributions.
Three New Jersey pension funds — the Police & Fireman's Retirement System, Public Employees' Retirement System, and Teachers' Pension & Annuity Fund – received about 28% each of those required contributions, by far the smallest percentage of the 91 plans measured. Assets of those plans total $76.8 billion.
Washington State Law Enforcement Officers and Fire Fighters Retirement System-Plan 1 had the best funding ratio at 135%, followed by Washington State Law Enforcement Officers and Fire Fighters Retirement System-Plan 2 at 113.7%.
Of the 96 plans for which rolling amortization risk was measured, 55 plans assume a rolling, 30-year amortization of unfunded liabilities, which current Governmental Accounting Standards Board standards allow, but the report states “the re-amortization of liabilities over new 30-year periods means that little meaningful progress is possible toward full funding absent investment gains above the discount rate assumption.”
The Kentucky Employees Retirement System-Non-Hazardous reports the worst actuarial funding ratio at 23.2%, followed by the Illinois State Employees Retirement System at 34.2%.
Actuarial valuation dates for the report range from April 1, 2012, to Oct. 1, 2013, depending on the availability of state reports.
The report is available on Fitch's website. Login is required.