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Pension Funds

Wilshire: State plan funding ratios see second consecutive annual increase

The funding ratio of state pension plans went up 1.7 percentage points to 72.2% in fiscal year 2018.

The funding ratio of state pension plans went up 1.7 percentage points to 72.2% in fiscal year 2018 from 70.5% the year before, according to Wilshire Consulting. This marks the second consecutive annual increase in aggregate funding ratios.

The report from Wilshire shows that pension assets reached $3.09 trillion in fiscal year 2018, up 5.8% from $2.92 trillion the year before. Meanwhile, the aggregate total pension liability reached $4.28 trillion in FY 2018, up 3.3% from $4.14 trillion in FY 2017.

Despite the increase in aggregate total pension liability, the aggregate shortfall is estimated to have reached $1.19 trillion in fiscal year 2018, a 2.7% decline from $1.223 trillion in FY 2017.

Wilshire's report also notes that nearly half of the plans studied lowered their discount rates recently. The range for discount rates in 2018 was 3.95% to 8%, with a median of 7.25%, which is the same as the year before.

Although asset allocation varies greatly by retirement system, state pension plans in aggregate had allocations to equity, including private equity, equal 57.8% in 2018. Allocations to fixed income totaled 23.7%, with 12.9% allocated to real assets, and the rest in alternatives and cash. In 2013, the aggregate allocations were 57.8% equity, 23.7% fixed income, 7.2% in real assets and 11.2% in alternatives and cash.

"Benefit accruals and interest cost decreased the funded ratio by nearly 6 percentage points, but this was more than offset by total contributions and asset returns, which increased the funded ratio by over 9 percentage points," noted Ned McGuire, managing director and a member of the pension risk solutions group of Wilshire Consulting, in a news release. "The biggest year-over-year change has been the increase in plans with funded ratios between 70% and 80%." The report shows that the distribution of funded ratios between 70% and 80% was 25% of plans in FY 2018, up from 18% the prior year.

The report is based on data from the most recent financial and actuarial reports issued by 134 retirement systems sponsored by the 50 states and the District of Columbia. Of the 134 systems studied, 106 systems reported actuarial values on or after June 30, 2018, and the remaining 28 systems last reported before that date.