US - The asset shortfall for state pension plans is worse than that of corporate pension plans, a new report by Wilshire Associates has revealed.
Wilshire’s 2005 Report on State Retirement Systems: Funding Levels and Asset Allocation surveyed 125 state retirement systems including 64 funds which provided actuarial data on or after June 30, 2004 and 61 systems that reported data before June 30, 2004.
According to the report, of the 64 funds that provided data after June 2004, 84% are underfunded with the average underfunded plan having a funding ratio of 77%.
In comparison, the firm estimates that as of December 31, 2003 defined benefit (DB) pension assets for S&P 500 companies totalled US$1.03bn, US$123bn less than pension liabilities of US$1.15bn, giving an aggregate funding ratio for corporate plans of 89%.
Wilshire said its findings also indicate the asset shortfall for state pension plans is similar to city and county systems. The firm estimates that as of June 30, 2003, city and county pension assets totalled US$148.6bn, US$30bn less than pension liabilities of US$170.2bn, giving an aggregate funding ratio for city and county retirement systems of 83%.
Wilshire found the market value funding ratios of state pension plans fell dramatically between 2000 and 2002, from 112% to 81% and have remained flat over the last three years. Actuarial value funding ratios declined steadily over the last five years, from 103% in 2000 to 85% in 2004.
In 2003, pension liabilities exceeded assets by US$207.7bn and the funding ratio stood at 77%. One year later, assets have risen to US$778.9bn, or 14%, while liabilities have grown to US$942.3bn, or 6%.
The result is a decrease in the difference between assets and liabilities from a negative US$207.7bn to a negative US$163.4bn, an improvement in funding ratio from 77% to 83%.
In other findings, the research showed state pension portfolios have a 67% average allocation to equities, including real estate and private equity, and a 33% allocation to fixed income.
The 67% allocation is up from 65% the previous year, indicating that pension funds remain committed to stocks, Wilshire noted.
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