WASHINGTON -- Funding levels for state pension plans rebounded in the first half of 2018 after experiencing a sharp increase in adjusted liabilities in fiscal 2017, according to two reports released Monday.
Wilshire Consulting said the aggregate funded ratio for U.S. state pension plans remained unchanged between the first and second quarters of 2018 at 70.8%, up 0.7 percentage points from the previous 12 months.
Most states completed their 2018 fiscal year on June 30, so the uptick in funding levels provides a preview of the improvements most state pension plans will report going forward.
Wilshire calculates aggregate figures based on liabilities, service costs, benefit payments and contributions. It does not provide a state-by-state breakout.
Moody’s Investors Service also predicted Monday that states will report improvements in their pension plan funding in the future, after experiencing a spike in adjusted net pension liabilities in fiscal 2017.
“Investment returns improved in the last two fiscal years,” Moody’s said. “The impact of these stronger investment returns will partly reverse the negative impact of low returns in fiscal 2015 and 2016 and the benefit will begin to show in next year's pension medians. Moreover, some of the fiscal 2017 spike in liabilities will be offset by higher interest rates.’’
Moody’s analyst Pisei Chea, the lead author of the report, said aggregate state adjusted net pension liability is projected to decline 6.6% in fiscal 2018 to $1.5 trillion.
“The aggregate state ANPL will again decline about 4.7% to $1.4 trillion in fiscal 2019 reporting, reflecting continued favorable investment,” she said.
The Moody’s report also provided a state-by-state analysis of public pension plan funding in fiscal 2017.
Illinois had the most fiscally underfunded plans with an adjusted net pension liability at 601% of annual state revenues followed by Connecticut at 360%, Kentucky at 332%, New Jersey at 290% and Maryland at 263%.
Illinois experienced a 25% increase in its adjusted net pension liabilities in fiscal 2017, reaching the $250 billion level compared to the median of $12 billion among the states.
The median adjusted net pension liability was 107% of annual state revenues in fiscal 2017, Moody’s said.
The five states with the lowest adjusted net pension liability were North Carolina at 36%, North Dakota at 39%, Wyoming at 45%, Utah at 47% and New York at 48%.
States cited in the Moody’s report for enacting notable pension reforms this year included Ohio (Aa1 stable), Colorado (Aa1 stable), Minnesota (Aa1 stable), and Kentucky (Aa3 stable).
S&P Global, which also reports annually on state pension funding, is expected to issue its report in October.
