The funded ratio of state and local pensions inched up to 72.8% in 2018 from 72.1% in 2017 but has been flat for several years and is well below its peak of 102% in 2001, according research from the Center for State and Local Government Excellence and the Center for Retirement Research at Boston College.
The updated report shows that although liability growth has steadily declined during the past two decades, to 3.8% in 2018 from 7.7% in 2002, asset growth has been even slower.
"Fundamentally, the path of the funded ratio for public plans depends upon the growth of actuarial assets relative to the growth of actuarial liabilities," the report said. "Liability growth slowed dramatically from 2001 to 2018, but still exceeded asset growth over the period."
These trends suggest that if institutional investors want to improve funded ratios, they need to increase their asset bases through contributions.
The report said that asset owners should adopt more stringent funding methods to improve their funded ratios, such as "level-dollar amortization and shorter amortization periods." Another option is to lower assumed investment returns, which would help ensure funding progress by further raising required contributions.
