Late to the public pension game

April 2, 2014

Pew Charitable Trusts has released an ominous report, The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow.” The report finds that in 2012, U.S. public pensions lost ground in their funding ratios and ended the year weaker than they started. What is not clear is why, in March 2014, Pew is reporting 2012 data. Because of large stock market gains in 2013, pension funding gaps are now actually shrinking, not growing. Reuters writes about the Pew report:

Factoring in promises made by local governments to fund pension benefits for their employees, total pension debt climbed to over $1 trillion as of June 30, 2012, the end of the most recent budget year for which data is available.

‘Even though we’ve seen recent market gains and reforms, the funding gap has continued to grow for pensions,’ said David Draine, a senior researcher at the Pew Center on the States.

A month earlier, Reuters reported 2013 pension fund data from Wilshire that had pension funding levels improving:

Swelling investment returns improved funding for U.S. public pensions last year, but almost all retirement systems are still in weak shape and unable to cover their liabilities fully, according to a report released by Wilshire Consulting on Tuesday.

In the annual study provided to Reuters, Wilshire estimated 134 state retirement systems had enough assets to cover 75 percent of their obligations in the year ended June 30, 2013, up from 72 percent in 2012. Still, 96 percent of those plans were considered underfunded, with an average ratio of 70 percent.

Aligning with the Wilshire data on March 6, the Federal Reserve issued its most recent Financial Accounts of the United States (page 82), which reported state and local pension assets and liabilities through the fourth quarter of 2013. Pension plans made excellent progress in 2013, with a reduction of $460 billion in pension fund liabilities between 2012 and 2013:

There has been a lot of criticism about Pew Charitable Trusts work on public pensions, and their promotion of 2012 data is misleading and sloppy. It’s not right to use out-dated information that clearly misrepresents the current condition of public pensions. America deserves more from the Pew Charitable Trusts.

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