US Public Pensions 'On the Road to Recovery'

After declines in funded levels over the past five years, state pensions are beginning to grow again, according to a new report.

State pension funding is on the rise after “the best year since the recession,” according to new research from Loop Capital Markets.

The firm’s 2015 review of public pension funding found that most state pension plans are gaining ground, with funding levels on average increasing in 2014 compared to the previous year.

“2014 was the best year for state pensions since the recession,” wrote Chris Mier and Rachel Barkley, managing director and vice president of Loop Capital, respectively.

The median funded level for the 50 states and District of Columbia grew to 71.5%, up from 69% in 2013. The mean funded level in 2014 was 73.1%, compared with 71.9% the year prior.

Despite the increases, only Washington, DC, South Dakota, and Wisconsin were found to be fully funded, with five states recording funded levels above 90%. A total of 18 states had funded levels greater than or equal to 80%, an increase from 14 in 2013.

However, while a total of 33 states increased funding in 2014, 16 states continued to fall further into pension debt. These states declined enough to bring the overall national funded level down from 73.1% in 2013 to 72.6%.

Worst off is Illinois, which remained stable over the year at 39% funded.

Over five years, 30 states have lower funded levels, with Michigan declining the most from 79% in 2010 to 61% in 2014. Funding for Kentucky, New York, and Pennsylvania dipped 14% over the same time period.

Meanwhile, Maine and Oklahoma had the largest five-year gains, with each seeing their funded level increase by 15%.

Despite negative outliers, the report concludes that pension health is improving overall, based on the number of states experiencing annual increases in funded levels. The 33 states with improved funding in 2014 represent a climb from 19 in 2013 and just five in 2012.

According to the review, 14 states have now reported increasing funded levels two years in a row—a possible indication of continuing growth in the future, Loop Capital said.

US State Pension Funding Map Source: Loop Capital Markets

Related: US Public Pension Shortfall Triples in Under a Decade