Liabilities Sink 2012 US Public Pension Gains

(September 24, 2013) — The aggregate funding level of US city and county pension plans fell by 11 percentage points to hit 69% in the fiscal year 2012, consulting firm Wilshire has revealed.

In a report released to Reuters, the firm said a group of 106 plans were hit by poor stock market returns and ballooning liabilities in those 12 months.

Over the year, the funds saw their assets rise by 2%, or $6.1 billion, to hit a combined $387 billion, but their liabilities swelled by 16%, or $71 billion, to leave them on the hook for $560.6 billion of promised payments.

Across the 106 funds, the median 10-year return rate by the end of fiscal 2012 was 6.7%. This was somewhat lower than the media assumed rate of 7.75%, which had not been changed since the year before.

Some US public pensions have been reconsidering, and in some cases lowering their assumed return rate, to set a target that may be more realistic in the current low-interest rate environment.

“The fact that the liabilities did increase so much … should be a wakeup call to these plans … saying maybe (it’s) time to take a look and see where this growth is taking place,” Russ Walker, vice president at Wilshire told Reuters.

On average, these funds showed a movement away from risk assets, with a lower allocation—61%—to equities than a year earlier, when they made up 65.9% of portfolios with the remainder in fixed income.

Such allocations might help them out in the current financial year, however. Walker said growth assets were set to make good returns for investors, which should help bolster funding levels.

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