Wilshire: State Pensions Are Over 70% Funded

Although liabilities climb, shortfalls shrink by $58 billion. 

State pension plans increased by nearly three percentage points to 70.2% in fiscal year 2017, according to a report from Wilshire Consulting.

Ned McGuire of Wilshire’s pension risk solutions team said that a boost in global equity for the year was “a primary driver” of the funding ratio improvement. McGuire also noted that the estimated average value of assets is the highest since the agency began reporting on the subject.

The 71 state retirement systems that reported actuarial data for 2017 saw their assets climb more than nine percentage points to $3,170 billion. Liabilities also increased to $4,518 billion, almost five percentage points higher than the past year.

While liability increases may cause its woes, the average shortfall has decreased by $54 billion. According to Wilshire, it now stands at $1,348 billion.

Pension plans are still lowering their discount rates as nearly half of the reviewed retirement funds reduced their rates. Ranging from 4.21% to 8%, the average discount rate in 2017 was at 7.25%. This is down 25 basis points from 2016.

Although allocations differ from system to system, the average state pension plan investments were rooted in private and public equities, which 57.6% of the studied funds put their money in during the fiscal year. On average, 22.8% allocated to fixed income and 19.8% of plans invested in real assets, alternatives, and cash.

In addition, the average rate of return also dropped by 25 basis points to 7.25%, Wilshire reports.

The report is based on the most recent financial and actuarial reports of 130 state pension systems.

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