WASHINGTON, Sept 16 Puerto Rico can cover only
11.2 percent of its public pension costs, which is even less
than the notoriously underfunded Illinois retirement system, an
independent investment research group reported on Monday.
Morningstar said that looking only at U.S. states, however,
Illinois is in the worst condition. The state has only enough
assets to cover 40.4 percent of its liabilities, or 3 percent
less than last year, it said.
Wisconsin continues to have the best-funded public pension
among U.S. states and territories, Morningstar found, as it is
able to cover 99.9 percent of its retirement system's estimated
Puerto Rico, a U.S. commonwealth since 1952, is in dangerous
waters for retirement funding as its economy and fiscal
conditions deteriorate. Its pension liability is now put at
$8,900 per person, and the island's three public pension plans
are projected to deplete their respective assets in the coming
years, Morningstar said.
Puerto Rico's 3.7 million people have endured a shrinking
economy since the mid-2000s that may again be tumbling back into
recession, partly from a pensions overhaul that is kicking in.
It passed reforms earlier this year to try to bring down its
$37.3 billion of unfunded pension liabilities, but the
territory's $35 billion of pension debt will remain for years.
Altogether, 26 states and Puerto Rico fall below the 70
percent funding level which Morningstar considers "fiscally
sound." On the flip side, 12 states have funded ratios of 80
percent or more.
In aggregate, the funded ratio for all states and Puerto
Rico was 72.4 percent in 2012, compared to 74.5 percent in 2011,
according to Morningstar data.
For Illinois, the pension liability is equivalent to $7,421
per person, up $900 from last year.
A bipartisan panel of Illinois legislators has been meeting
since June to find a way to address the state's $100 billion
unfunded pension liability. Continued inaction on pension reform
has pushed Illinois' credit ratings to the lowest levels among
U.S. states. It also led Illinois Governor Pat Quinn to suspend
lawmakers' pay to spur action on pensions.
Moody's Investors Service recently determined that the
state's pension bill is equal to 241 percent of its revenues.
Earlier this year, Illinois had to settle with federal
securities regulators over misleading municipal bond investors
about the underfunding of its pension system.
The financial crisis five years ago devastated public
pensions' investments - which provide 60 percent of their
revenues. At the same time, states that had short-changed their
pensions for years pulled back even further as their own
revenues buckled during the 2007-09 recession.
As retirement systems racked up massive shortfalls,
statehouses and governors renegotiated public employee contracts
and federal leaders began proposing changes to how pensions are
funded. The Governmental Accounting Standards Board that guides
how state and local governments account for pensions, began
demanding more disclosure on unfunded liabilities and sought to
change how poorly funded pensions project investment returns and
"smooth" out liabilities over many years.
As the stock market has rebounded, states are pitching in
more - all leading to a turnaround in many pensions' finances.
Pension assets surpassed pre-recession peaks this year to set
new record highs, according to the U.S. Census.
This is the second year in a row that Wisconsin has ranked
highest in funding for its public retirement system in
Other reports, including the Pew Charitable Trusts annual
analysis of pension funding, have long hailed Wisconsin's
retirement system, even before Governor Scott Walker and the
Republican-led statehouse crafted major changes to public
employee compensation that plunged the state into political
tumult in 2011.