U.S. State Pension Funding Ratios Declined in 2011, Loop Says

Public pension funds in 16 states and the District of Columbia last year had assets of 80 percent or more of what is need to pay promised benefits to retirees, down from 18 in 2010, Loop Capital Markets said.

The median ratio of assets to liabilities for 149 state- level pensions dropped to 73 percent in 2011 from 76 percent the year before as a slowing global economy and the European debt crisis damped investment returns and more states failed to meet annual contribution requirements, Loop said today in a report.

Eighty percent is a common threshold of sustainability for retirement plans, according to Loop. Illinois was the lowest- funded state, at 44 percent.

“State and local government pension plans’ fiscal health continued to deteriorate slightly over the last year, although the falloff is not significant for the vast majority of plans,” Loop said in the report.

Political pressure to rein in public employee pensions has increased over the last five years as state and local governments, battered by the longest recession since the Great Depression, have had to put more money into the funds at the expense of services.

Estimates of public-pension funding deficits vary from $1 trillion to $4 trillion, depending on assumptions regarding the appropriate rate for discounting liabilities and other demographic data, “an enormous disparity,” Chicago-based Loop said.

To help close the gap, 29 states made changes to their pensions in 2011, such as increasing employee contributions, raising the retirement age and revising automatic cost-of-living adjustments, according to the National Conference of State Legislatures.

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net