The funding ratio of 131 state defined benefit plans fell 3 percentage points to an estimated 74% in fiscal year 2015 as liability growth outpaced assets, said a recent report from Wilshire Consulting.
Of the 131 defined benefit plans, fiscal year 2015 data were available for 98. The remaining pension funds' 2015 data were estimated. Most of the plans had a fiscal year that ended June 30.
For those 98 plans that provided fiscal year 2015 data, pension assets rose 0.4% over the year to $2.14 trillion, while liabilities rose 4.3% to $2.94 trillion, for a funding ratio of 72.8%.
U.S. equity posted a strong performance in the 12 months ended June 30; however, rising interest rates in the second quarter of 2015 and a strong U.S. dollar dampened the returns of fixed income and global equity, respectively, said Russell J. Walker, Wilshire vice president and co-author of the report, in a telephone interview about the results. As a result, liability growth outpaced asset growth.
Additionally, 21 of the 98 plans reporting fiscal year 2015 data lowered their discount rates in 2015 because of reduced return assumptions, Mr. Walker said. Such a change could have raised plan liabilities.
The report, which also looks at plans' asset allocations, continued to show movement out of U.S. equities and into other growth assets such as non-U.S. equities, real estate and private equity.
The average allocation to U.S. equities in 2015 was 27.3%, down 16.7 percentage points from 2005. During the same period, the average allocation to non-U.S. equities rose 5.1 percentage points to 20.1% in 2015, real estate rose 3.9 percentage points to 8.1%, and private equity rose 5.6 percentage points to 10%. Regarding the other asset classes that Wilshire tracks, the average allocation to U.S. fixed income fell 7.5 percentage points during the period to 21.1%, while the average allocations to non-U.S. fixed income and other non-equity assets (cash and cash equivalents, commodities, hedge funds and other absolute-return strategies) rose 1.1 and 8.5 percentage points, respectively, to 2.3% and 11.1%.
Wilshire Consulting is the institutional investment consulting and outsourced CIO unit of Wilshire Associates.