New data indicates that 25 of the most populous U.S. cities hold different problems, with Washington D.C and Chicago at different ends of the fiscal health spectrum, when comparing unfunded liabilities and contribution levels,Morningstarsays.
In its Nov. 12-released report, titled “The State of City Pension Plans 2013: A Deep Dive Into Shortfalls and Surpluses,” the Chicago-based independent research firm states that the nation’s capital is the strongest with funding at 104.9% for its more than $5.3 billion actuarial assets.
However, Chicago, which has more than $10.5 billion in total pension assets, is approximately 35.2% funded, according aggregate data retrieved through city actuarial and annual financial reports.
The report lists that bankruptcy cases in Michigan and California make up some of the major red flags facing city financial growth.
“While municipal bankruptcies are rare, the recent cases of Stockton and San Bernardino in California, along with the City of Detroit, may have significant impact on the national level as we see how the federal bankruptcy court will view state constitutional protections of retirement benefits,” said Morningstar municipal credit analystRachel Barkley.
Detroit holds more than $6.8 billion in pension assets, but 91.4% funded ratio. This is above Morningstar’s fiscally sound threshold of a 70% funded ratio.
On July 18, IMMP’s sister publication The Bond Buyer reported that Detroit filed for
Last month, U.S. Bankruptcy Judge Meredith Jury said the California city was
“The main driver of long-term pension health for each city will, in our opinion, be driven by its management practices. Entities that fully fund their ARC [annual required contributions], actively seek to manage pension liabilities, and periodically review their actuarial assumptions and investment portfolio are likely to maintain adequate pension funded levels in the long run,” the analysis explains. “Governments’ treatment of pension funding and benefits in times of positive market returns and overall economic growth will also be a key indicator of whether plans will experience significant stress in future recessions.”
Other key findings list that this 25-city group holds $125 billion in unfunded pension liabilities. Total assets included more than $227.8 billion actuarial and $352.9 billion in actuarially accrued liability. Data for Indianapolis, Ind., Charlotte, N.C. and Columbus, Ohio were not available.
Previously, Morningstar
In its Sept. 16 released report, the research firm said that Wisconsin was top among all 50 U.S. states. For Illinois, its state pensions dropped three percentage points in funded ratio to 40.4%, the state report stated.
