Loop Says GASB 25 Data Bodes Well for State Pensions

Based on the Government Accounting Standards Board's GASB 25 data, 2014 was the best year for state pensions since the recession, Loop Capital Markets said Friday in its 13th annual public pension funding review.

According to Chicago-based Loop, roughly two-thirds of states reported increases in their respective funded levels, with median state funding level increasing 1.4%.

"Fiscal 2014 was in many ways a transition year for public pensions," Loop managing director Chris Mier and vice president Rachel Barkley wrote. For those reporting actuarial valuations, it marked the first reporting of funded levels since the recession when 2009 losses were incorporated into five-year smoothing for assets.

"Many plans are now reporting data under GASB 67 standards," they added.

On the other hand, said Loop, summing all state-level plans nationwide, the aggregate nationwide funded level declined from 73.1% the previous year to 72.6% under GASB 25 guidelines.

GASB 67 funded levels on average exceed GASB 25 funded levels for states and cities, mostly due to their use of market value for estimating asset valuations as opposed to smoothing in investment results.

Loop called the average unfunded liability per capita "sizeable," exceeding $1,800 for city plans and $3,000 for state plans. Overall, pension obligations account for half of economic debt for states and more than one-third for cities.

A substantial disparity continues in funding levels among states, said the report. South Dakota, Wisconsin and Washington, D.C., are fully funded whole eight states' weighted funding levels fall below 60%. Illinois and Kentucky were the lowest at 39% and 45%, respectively. Connecticut was at 50%, New Jersey 51%.

"We expect pension liabilities to be a key credit metric for state and local governments," Mier and Barkley wrote. "This is especially important as reporting guidelines change, leaving analysts having to rethink how they will approach the analysis of plans."

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