Liabilities outstrip asset growth at top public pensions

By BenefitsPro

Dan Berman

The nation’s largest public pension funds, which cover about 20 million participants, saw their liabilities grow faster than their assets in 2012, according to the latest Public Fund Survey.

The survey of about 85 percent of state and local retirement plans found the funds had assets of $2.67 trillion at the end of last year, an increase of 0.9 percent over 2011. Liabilities totaled $3.63 trillion, a rise of 4.1 percent. The median funding level of the funds was 73.1 percent.

The survey, which is sponsored by the National Association of State Retirement Administrators and the National Council on Teacher Retirement, found that the number of retirees receiving benefits from the 126 pension systems looked at was up 4.2 percent. The number of working participants dropped for the fourth year in a row as governments reduced their payrolls.

“When combined with an unfunded liability … a low or declining ratio of (active workers) to (retirees) can cause fiscal distress for pension plan sponsors,” the survey said.

Changes to public pension systems, especially those requiring higher employer and employee contributions, along with better investment returns have helped stabilize the pension funds, the survey said.

A change in the assumed rate of investment return has caused unfunded future liabilities to rise. For the first time since the survey began in 2001, the median assumed investment return was less than 8 percent. Some plans assume an investment return of less than 7 percent.

Investment returns rebounded in the second half of 2012, with the median one-year return at 13.1 percent. For the fiscal year that ended June 30, 2012, the median return had been 1 percent.

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