City and county pension plans saw their ratio of unfunded future liabilities plummet more than 10 percentage points to 69 percent from 2011 to 2012, according to a report released Tuesday.
Wilshire Associates, a global independent investment and consulting firm, said the 106 public retirement systems included in its 11th annual survey saw their ratio from 80 percent. For the 105 systems that reported data before June 30, 2012, the funding gap reached a total of $173.6 billion, up from $101.6 billion a year earlier.
“This deterioration in funding ratio was fueled by global stock market volatility in the 12 months ending June 30, 2012…,” said Russ Walker, vice president, Wilshire Associates, and an author of the report, in a press release. “Of the 105 city and county retirement systems which reported actuarial data for 2012, 92 percent have market value of assets less than pension liabilities, or are underfunded.”
The gap in funding comes against a backdrop of public pension systems from Rhode Island to California trying to ensure the long-term viability of their benefits programs. Reforms are often challenged by unions, which negotiated retirement benefits.
Assets for the pension funds rose 2 percent, or $6.1 billion, from $380.9 billion in 2011 to $387 billion in 2012, while liabilities grew 16 percent, or $78.1 billion, from $482.5 billion to $560.6 billion.
As Walker noted, just 8 percent of the funds reported that they had assets equal to or greater than future liabilities. Wilshire said it uses a 6.7 percent annual return on investment, which is below the standard 7.75 percent often used to evaluate pension systems. Wilshire also makes assumptions over a decade period, while actuaries make projections over 20 to 30 years.
Portfolios of the pension funds were heavily to real estate and private equities, with 61 percent of assets allocated in that sector. That was compares with the 65.9 percent in those investments from 2003-2007. Assets invested in fixed income instruments totaled 39 percent of investments, the reports said.