State, municipal pension plan funding ratios take hit

State and local pension funding ratios dropped to 77.9% from 84.8%, based on the Equable Institute's estimate of 2022 asset returns through June 30. However, aside from last year, the funding ratio remains the highest since 2007.

Municipal pension funds have increased allocations to alternatives such as real estate, private equity and hedge funds over the past 20 years. They allocated 12.9% of their assets to real estate, commodities and miscellaneous alternatives in 2021, up from 5.5% in 2001. Private equity more than tripled to 10.6% during that period.

Average 10-year returns have been volatile, falling to 7.53% last year from 9.54% in 2021. Since 2007, assumed rates of return have been dropping, currently standing at 6.93%.

The largest number, 80 plans, assume a 7% rate of return. Eighty-four municipal plans expect a return below this level and 64 anticipate a higher return