More than 40% of states have poor pension funding ratios, Morningstar municipal credit researcher Rachel Barkley says.
Barkley reached this conclusion as part of a wider state pension research project she is working on. Morningstar has released the first report in what may be four stages of research reports on state pensions.
Using impending Government Accounting Standards Board accounting standards, Barkley has found that more than 40% of states have pensions funding ratios below 70%. Morningstar is describing pension-funded ratios below 70% as “poor.”
Barkley used the most recently available comprehensive annual financial report as well as other sources of information in surveying state pensions.
“The state numbers are the aggregate funded ratios for all systems and plans to which the state contributes,” Barkley says. “As most states have multiple plans, the individual plans can have funded ratios that are above or below the aggregate for the respective state. For this calculation, we have excluded plans to which a state has solely an administrative role and does not contribute.”
GASB’s new standards for treating pensions are to be phased in gradually through 2015.
GASB will require states to publish the net pension liability, minus the plan assets, on annual financial statements. This publication and other GASB changes will make states’ low pension funding ratios apparent to the public, Barkley said. It will be interesting to see if this leads governments to reform their pensions and pension funding, she said.
Of the 10 most populous states, Illinois has the worst pension funding ratio, standing about 43%. Among this group of states, it also has the worst unfunded actuarial accrued liability per capita, with about $6500 owed per Illinois resident.
Morningstar believes that the unfunded actuarial accrued liability per capita is an important measure of state pensions and should be reported more, Barkley said.
Barkley’s first report provides an overview of state pensions and how they are structured. In the next three stages, reports will go into increasing detail on the pension conditions found in each state.
The second report should be available in the next few weeks. The third and fourth stages of will released as separate reports for each state. The fourth stage will probably be completed about six months from now, Barkley said.
In other pension news, Moody’s Investors Service is currently considering comments made on its proposed changes to evaluating pensions, said Moody’s spokesman David Jacobson. It plans to release a pension adjustment by the end of the fall, he said. Its proposals earlier this year deviated in some ways from the planned GASB standards.
Robert Slavin writes for The Bond Buyer, a SourceMedia publication.
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