State pension funds saw their adjusted net liabilities fall during fiscal year 2018 thanks to strong investment returns during the previous fiscal year, a report released Tuesday from Moody's Investor Service shows.
The adjusted net liabilities among state pension funds totaled $1.56 trillion in fiscal year 2018, down 3.6% from the prior year's total $1.62 trillion, according to Moody's latest Sector Profile report. The total for fiscal year 2018 represents 132.4% of total state revenue.
Strong investment returns in fiscal years 2017 and 2018 reversed the negative impacts of lower returns in the two previous fiscal years, although future issues may arise after returns fell in fiscal year 2019 to 6.6% from 8.8% for fiscal year 2018. The average target return among state pension plans for fiscal year 2019 was 7.2%.
Because the benefits of strong investment returns lag, Moody's says that liabilities will further decrease in financial reporting for fiscal year 2019. Lower interest rates and lower investment returns for fiscal year 2019 likely mean liabilities will grow again for fiscal year 2020 reporting.
The state of Illinois again had the highest adjusted net pension liability for fiscal year 2018, with $241 billion (representing 505.1% of state revenue), followed by New Jersey at $113.8 billion (274.9% of revenue), Connecticut at $62.1 billion (285.8% of revenue), Maryland at $59.3 billion (236.5% of revenue) and Kentucky at $45.9 billion (308.7% of revenue).
The four states with the lowest adjusted net pension liability were North Dakota at $1.8 billion (or 32.6% of revenue), Iowa at $4.8 billion (43% of revenue), Tennessee at $6.4 billion (32.3% of revenue) and North Carolina at $9.4 billion (31.4% of revenue).