State Pension Funding Drop to Lowest Level in 30 Years, Wilshire Says

Public plans were 62.6% funded in the first quarter after the coronavirus wiped out 12.2 percentage points.

Market volatility from the coronavirus dropped funding for state pension plans to its lowest level in 30 years, according to a report from Wilshire Consulting. 

In the first quarter, the aggregate funded ratio for state retirement systems fell to 62.6%, a 12.2 percentage point drop from 74.8% in December, according to a report last week from the advisory firm. In the past 12 months, that represented a 9.3 percentage point tumble. 

Returns fell below zero for nearly all the asset classes, which fell an aggregate 15.7% for the quarter. By comparison, liability values fell just 0.7%. 

The decrease could affect contributions in the coming year, particularly for those with already low funding ratios. In states such as New Jersey and Illinois, poorly funded pension plans are squeezing government budgets already tight from tackling the coronavirus crisis.  

New Jersey’s Gov. Phil Murphy, anticipating budget cuts, asked the Trump administration for aid. And in Illinois, roughly one-fifth of taxpayer dollars go to pensions before any revenue losses, according to a Pew report. 

Operating without the usual influx of tax revenues, governors are pleading with Washington for federal aid for expenditures. Even states that went into the public health crisis with a strong cash position, such as New York, are asking for additional relief.  

The advisory firm calculated the funding ratio based on an assumed portfolio that allocates 29% to US equity, 18% to non-US equity, 10% to private equity, 22% to core fixed income, 6% to high yield bonds, and 15% to real assets. 

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