On September 12, 2016, S&P Global Ratings published its report, U.S. State Pensions: Weak Market Returns Will Contribute To Rise In Expense. According to the report, “After losses in 2008 and 2009, most U.S. state pension plans have not been able to recover to funded levels seen in the early 2000s. Investment returns in 2015 and 2016 are not going to make that path any easier.” It also stated, “Continued trends of slow revenue growth, growing liabilities, and higher future pension contribution costs could amplify an already constrained budget environment for many states.”

The study is based on valuation data compiled by S&P through 2014 for all state-sponsored plans in the 50 states as reported in their 2015 comprehensive annual financial reports (CAFRs).  In its pension analysis, S&P measured the states’ pension funded ratios; compared net pension liability per capita in 2015 under the new Governmental Accounting Standards Board (GASB) reporting standards with unfunded actuarial accrued liability (UAAL) per capita in 2013 under the previous GASB accounting; and compared total annual plan contributions to accounting measures for plan funding progress.

The 2015 survey report included reported pension liabilities under GASB Statements Nos. 67 and 68, effective for employers and governmental non-employer contributing entities for fiscal years beginning on or after June 15, 2013 and June 15, 2014, respectively. At the end of fiscal year 2015, the median funded ratio was 74.6%.   The majority of plans reported a decline in funded ratios between fiscal years 2014 and 2015 due to relatively weak market performance and higher reported liabilities.

The report concludes that, “as the challenge of meeting investment returns and contribution hikes intensifies, states might also resume the quest for pension reform to manage rising pension liabilities, despite a road fraught with legal hurdles and setbacks. How states and plans manage these pressures and craft funding policies to meet a realistic estimate of the long-term pension liability is important to future state credit quality.”

The report is available on NASRA’s website here.