U.S. public pension funding hits 75%

secure-iexpatsAccording to the latest annual report by Wilshire Consulting, American public pensions funding has grown after 2013’s larger investment returns.

The investment analytics and consulting firm projected that 134 public retirement schemes had sufficient assets to cover almost three quarters of their obligations for the year ending on the 30th of June, 2013.

This is up three percent from the same period the year before, and is the highest funding level since 2008 when it hit an 81% peak.

Nevertheless, 96% of those continue to be underfunded, with a 70% average ratio, meaning most of the schemes remain in bad shape and are not able to cover their liabilities fully.

Wilshire Vice President Russ Walker – a co-author of the report – stated: “The takeaway from this year’s study is, at its most benign, a message of ‘steady as she goes.’”

Whilst global stock markets have given a strong performance, “they still have a way to go before they achieve a more firm funding standing.”

Historical context

State pensions have changed in recent years as states continue to short-change the schemes and cut back the amount of money saved for the retired, as states gambled they could meet their pension obligations via investments rather than savings.

After the global recession, this practice only got worse as revenues from investments plummeted, bringing the roughly 66% of pension revenues they are intended to fund down with them.

Across America, individuals have been left wondering whether states will have the means to pay pensioners the promised benefits as the country struggles to balance its budgets.

This has become an especially contentious issue now the baby boomers hit retirement.

Currently only New York and Wisconsin can claim they have fully funded pension programmes – a dramatic dip from a decade ago when over half did.

Protestors and pension experts repeatedly claim that the assumed rates of return that many of the funds follow are unattainable, and thus are adversely affecting future retirees.

Stock market sensitivity

On average, public pension portfolios have a 65% allocation in equities – making them sensitive to the rises and falls of the stock market.

However, the report has found an inclination during the past ten years to invest in real estate, offshore markets, and private equity, providing better diversification.

An overall market improvement allowed pension asset growth to outpace pension liability growth, but the report nonetheless predicted a median 6.63% yearly growth for pension investments – well below the 7.75% median assumption.

Even with these positive early signs, many remain skeptical over the longevity of this growth period, especially not US Census data reveals that earnings have slowed.

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