WASHINGTON — By 2016, assuming a healthy stock market, public pension plans should be slightly more than 80% funded using either the market or actuarial value of assets, the Center for Retirement Research at Boston College said in a report.

That ratio could be lower if public plans widely adopt a combined rate to discount their benefit promises, the report said.

The research center explores the funding of state and local pension plans from 2012 through 2016 integrating the new Governmental Accounting Standards Board’s standards for pension accounting and reporting. These accounting changes significantly change how pension liabilities are accounted for and reported in state and local governments’ financial statements.

The measurement of funded ratios will change in 2014 as GASB’s new guidelines take effect. At the very least, market assets will replace actuarially smoothed assets in governments’ calculations.

How the new GASB standards will affect the trajectory of funded ratios of the next few years will depend on: the performance of stock market, growth in contributions and benefits and growth in liabilities, the research center said.

Regardless, “measuring funded status of plans has always been fraught with difficulty,” the report said. “Unfortunately, the future will be more confusing than the past.”

In 2012, the estimated aggregate ratio of assets to liabilities for 109 state-administered plans and 17 locally administered plans was 73% under GASB’s old pension accounting changes, the report said. This ratio declined slightly between 2011 and 2012 and is considerably below the funding levels in the 1990s and early 2000s.

The actuarial value of assets totaled $2.8 trillion while liabilities totaled $3.8 trillion, which resulted in a 73% funded ratio, the research center said. The aggregate ratio of assets for state and local pensions peaked at 103% in 2000, according to the report.

Funded levels declined from 2011 to 2012 because liability growth outpaced asset growth. In 2012, growth in liabilities was roughly 4.2%, considerably lower than the 6% growth in earlier years.

“Liability growth has slowed because states and localities have responded to the economic crisis by reducing their workforce, freezing salaries and/or modifying the cost-of-living adjustments for current and future retirees,” the report said.

At the same time, the growth in the actuarial value of assets was even slower, the report said. The 2012 valuation for most plans pre-dated the 24% increase in the stock market that occurred between June 2012 and June 2013.  

The report comes as poorly funded public pension systems have come into focus across the nation after Detroit filed for bankruptcy last month in part due to their failure to set aside enough money to cover the pension benefits they promised government workers.

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