Budget & Finance

Loop Report: Few States Improved Funded Status Of Pension Plans

WASHINGTON — Only a few states improved the funded status of their pension plans in fiscal 2012, Loop Capital Markets said in its 11th annual public pension funding report, released Thursday.

The funded status for state pension funds declined by two percentage points on a weighted average basis, the report said. In addition a significant number of states continue to have severe pension problems that remain unresolved.

The report examined 247 of the largest state pension plans as well as 77 local pension plans. It looked at data from comprehensive annual financial reports for fiscal 2012, though for 14 states, the actuarial valuations in the CAFRs are from 2011.

Comparing CAFRs from fiscal 2012 to fiscal 2011, only five states had increases in their weighted average funded ratios, compared to 40 states with decreases.

Thirteen states had weighted average funded ratios of 80% or higher in fiscal 2012, the report said, while Illinois had a ratio of 41%, the lowest of any state.

Just 17 states showed increases in their weighted average annual required contributions, while 10 states made no change to their ARCs and 21 had decreases, according to the report. Information was not available for Georgia and Oregon.

“During periods of budgetary pressure, legislators are tempted to use funds to ‘pay the bills’ instead of paying into pensions,” the report said. “While revenues continued to improve at the state governmental level in 2012, the slow rate of improvement in the economy and the continuing trend of reduced federal support maintained ongoing pressure on state budgets.”

Although many states have recently made pension reforms, the overall decline in funded levels from fiscal 2011 to fiscal 2012 suggests that the reforms are not yet resulting into a decrease in state fiscal stress, according to the report.

Since cost savings from pension-reform legislation builds over time, the savings were not yet sufficient in 2012 to reduce unfunded actuarial accrued liabilities and improve funded ratios, it said.

“Moreover, the progress previously made by Rhode Island and some other states is being unwound by controversies over the use of alternative investments, legal challenges to pension reform legislation, an resurgent union campaigns to stop pension reform progress,” Loop said.

The slow recovery, the pension issues in Illinois, Chicago and Detroit and the severe underfunding of pensions in Puerto Rico “suggest that public policy will justifiably remain guided by the severe pension problems of the few and the emerging problems from other pension systems, instead of the adequate performance that most states are experiencing,” the report said.

There is likely to be an increase in confusion about the performance of pension plans because new pension accounting standards from the Governmental Accounting Standards Board are coming into effect and Moody’s and possibly other rating agencies have decided to create their own pension evaluation systems, the report said.



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