WASHINGTON, June 10 A rising stock market will
cause most U.S. public pensions to achieve healthy funding
levels this year, even as they adapt to an overhaul on
accounting for investments, according to a survey from the
Center for Retirement Research at Boston College released on
Up until this year, almost all public pensions "smoothed"
their assets' values across a short span of years. That meant
the losses they suffered in 2008 from the financial crisis,
pummeling their biggest source of revenue - returns on equities
- affected their funding levels through 2013. Last year, the 150
plans Boston College surveyed had enough assets in total to
cover 72 percent of their liabilities, the same as 2012. The
ratio first dipped below 80 percent, considered the threshold
for a financially healthy plan, in 2009.
The Governmental Accounting Standards Board has ended the
process of smoothing starting this year. Under the old methods,
plans' funded status would have likely risen to 75.2 percent as
the losses from the crisis finally fell out of the calculations,
and then probably climbed 77.4 percent the following year.
Under the new standards taking effect this month, though,
many plans will appear to be in even better shape. Recent gains
in the stock market will register at once, bringing the baseline
funded ratio up to 80.6 percent in 2014 and possibly 81.6
percent in 2015, the survey found, projecting the investments'
performance using the Dow Jones Wilshire 500 Index.
Public pensions ended 2013 with the highest assets on
record, according to the U.S. Census.
"Regardless of the measurement standard, a continued healthy
stock market will improve the funding picture in 2014. What
happens thereafter depends very much on the performance of the
stock market and the extent to which plans adjust their discount
rates," according to the survey.
There is a hitch. If a public pension is deemed
"underfunded," it will have to reduce its projected rate of
return to one GASB considers "riskless." When applying this rate
to all the sample pensions, Boston estimated the funded ratio
would be 69.5 percent this year and 70.4 percent next.
Last week, the Federal Reserve reported public pensions had
a funding gap of $1.372 trillion in the first quarter. With
benefit entitlements totaling $5.034 trillion, pensions were
72.7 percent funded. Just a year earlier, in the first quarter
of 2013, pensions were only 69 percent funded, according to the
Federal Reserve data.
Still, each state has a unique retirement system for public
employees and the plans' financial health can vary greatly. For
fiscal 2013, which for most public pensions ended June 30, 2013,
6 percent of the plans surveyed had enough assets to cover more
than 100 percent of their liabilities and 27 percent of plans
could cover 80 percent to 99 percent, Boston College found.
(Reporting By Lisa Lambert; Editing by Jonathan Oatis)