CHICAGO, May 7 (Reuters) - Robust investment returns lifted the funded ratio for U.S. state retirement systems to 70.2 percent in fiscal 2017, reversing a two-year decline, Wilshire Consulting reported on Monday.
Along with the 2.8 percentage-point increase over fiscal 2016’s aggregate funded ratio of 67.4 percent, the systems’ unfunded pension liabilities fell by $54 billion to an estimated $1.348 trillion. “A primary driver of the improvement in the funding ratio was the increase in global equity values for the twelve-month period ending June 30, 2017,” said Ned McGuire, managing director at Wilshire Consulting, a unit of Wilshire Associates Incorporated, in a statement.
He added that an estimated aggregate asset value of $3.17 trillion in fiscal 2017, a 9 percent increase over fiscal 2016, was the highest since Wilshire began reporting on state retirement system funding levels.
While the Wilshire report, based on data from 71 out of the 130 retirement systems sponsored by the 50 states and the District of Columbia, showed funding improvements, some pension systems continue to struggle 10 years after the financial crisis with low funded ratios and big unfunded liabilities.
Illinois, for example, ended fiscal 2017 on June 30 with a 39.9 percent funded ratio and a $129 billion unfunded liability for its five retirement systems based on the actuarial value of assets.
A lower funded ratio indicates the overall soundness of a pension fund is weaker and more money is required to meet future obligations.
Nearly half of the state systems continued a trend toward lower discount rates, the expected long-term rate of return on investments. The fiscal 2017 median rate was 7.25 percent, 25 basis points lower than in fiscal 2016, according to Wilshire. If a plan’s investment returns fall below that expected rate, government sponsors need to make up for the loss. (Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)