Loop Capital: State, local funding stabilizes in 2013

Pension funding at both the state and local levels appears to be stabilizing, according to the 12th annual public pension funding review announced Wednesday by Loop Capital Markets, which found minimal annual declines in fiscal year 2013.

Most of the data are as of June 30, 2013, from comprehensive annual financial reports. Loop Capital analyzed 247 state pension funds and 84 of the larger local funds.

While only five states saw their plans' funding ratios improve in fiscal 2012, that number grew to 19 states in 2013.

The aggregate funded level for the 247 state plans fell to 73.1% from 73.5% in fiscal 2012, based on fiscal 2013 data.

States with the largest annual increase in funded levels included South Dakota, Oregon, Utah, Arkansas and Montana. The top five states based on funded levels were South Dakota and Wisconsin at 100% funded, North Carolina and Washington at 95%, and Tennessee, 92%.

On the flip side, Loop Capital found funding levels weakening in 26 states. Most of the states with the largest declines in pension funding already are weak-performing states, according to Loop Capital analysts.

The bottom five states were Alaska at 55%; New Jersey, 54%; Connecticut, 49%; Kentucky, 48%; and Illinois, 39%.

Despite the fact that slightly less than half of the states and cities in the analysis show a commitment to paying the actuarially required contribution, “there was a slight improvement,” said Chris Mier, managing director of the analytical services division at Loop Capital. While states made 78.1% of ARC payments in fiscal 2012, that figure rose to 80.7% in 2013. For local plans, that figure rose to 93.8% from 92.7% the year before. Twenty states paid 100% or more of the ARC in 2013.

“Given the combination of increasing state and local revenues along with strong investment returns in recent years, entities who have not fully funded their ARC over the past few years have missed out on a prime opportunity to fund their pension plans,” the Loop Capital report said.

Since 2012, 46 states have enacted a total of 447 pension reform bills. While that creates some optimism for state and local governments' ability to respond to pension problems, progress “is literally a state-by-state skirmish,” Mr. Mier said.

“We do not believe this is a systemic problem. It is state by state,” he said.