US - The budgets of many US cities are being pressured by growing pension fund contributions at a time when other rising costs were also competing for city resources, a study by Standard & Poor's Rating Services has found.
Cities in the US have seen their mean funded ratio drop from nearly 100% in 2000 to 84%, the report on the pension and debt statistics of the 20 largest cities rated by S&P found.
With the final results of fiscal 2006 pension investment returns still incomplete and full actuarial valuations months away, S&P said it expected that at least most of the earlier large investment losses would have worked their way through the actuarial model, thus opening the door for funding improvements in the future if the markets cooperate.
But it stressed that meeting the assumed long term investment rate of return required to bring funds back into balance, historically around 8%, would be a continuing challenge for fund managers.
S&P credit analyst Parry Young said the degree to which the downward trend on the mean funded ratio continued was dependent on a number of unpredictable variables, including investment performance, actuarial assumption changes, and potential increases in longevity.
Unfortunately, cities have varying degrees of control over these factors, said Parry.
S&P said it would continue to monitor the pension liabilities and funding levels of US cities.
By Damian Clarkson
This week's edition of Professional Pensions is out now
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