SANTA MONICA, Calif., March 4, 2013 (GLOBE NEWSWIRE) -- Wilshire Consulting, the institutional investment advisory and outsourced-CIO business unit of Wilshire Associates Incorporated (Wilshire®), a diversified global financial services firm, announced today that its seventeenth report on the financial condition of state-sponsored defined benefit retirement systems shows that the funding level of the plans included in the study dropped 4 percent in fiscal year 2012 to 73 percent from 77 percent in 2011.
The Wilshire 2013 Report on State Retirement Systems: Funding Levels and Asset Allocation is based upon data gathered by Wilshire from the most recent financial and actuarial reports provided by 134 retirement systems sponsored by the 50 states and the District of Columbia with 109 systems reporting actuarial values on or after June 30, 2012 and 25 systems last reporting prior to that date.
"The deterioration in the funding ratio was fueled by global stock market volatility in the twelve months ending June 30, 2012," stated Russ Walker, vice president, Wilshire Associates, and an author of the report. "Unfortunately, growth in fund assets could not keep pace with growth in plan liabilities over fiscal 2012. For the 109 state retirement systems that reported actuarial data for 2012, pension assets and liabilities were $1,825.9 billion and $2,660.1 billion, respectively. The funding ratio for these 109 state pension plans was 69 percent in 2012, down from 73 percent for the same plans in 2011," he noted.
According to the report, for the 109 state retirement systems that reported actuarial data for 2012, pension assets shrank by 1.2 percent, or $21.7 billion, from $1,847.6 billion in 2011 to $1,825.9 billion in 2012 while liabilities grew 4.8 percent, or $122.2 billion, from $2,537.9 billion in 2011 to $2,660.1 billion in 2012. The continued steady growth in liabilities for the 109 state pension plans led to an increase in the plans' aggregate shortfall, as the -$690.3 billion shortfall in 2011 grew to a -$834.2 billion shortfall in 2012.
"Of the 109 state retirement systems that reported actuarial data for 2012, 95 percent have market value of assets less than pension liabilities, or are underfunded. The average underfunded plan has a ratio of assets-to-liabilities equal to 68 percent," Walker said.
"State pension portfolios have, on average, a 64.8 percent allocation to equities – including real estate and private equity – and a 35.2 percent allocation to fixed income and other non-equity assets," Walker commented. "The 64.8 percent equity allocation is higher than the 63.4 percent equity allocation in 2002 and largely reflects a rotation out of U.S. public equities and into non-U.S. equities, real estate and private equity."
The report shows that asset allocation varies by retirement system. Twenty-one of 134 retirement systems have allocations to equity that equal or exceed 75 percent, and 12 systems have an equity allocation below 50 percent. The 25th and 75th percentile range for equity allocation is 60.2 percent to 72.5 percent.
Wilshire forecasts a long-term median plan return equal to 6.9 percent per annum, which is 0.9 percentage points below the median actuarial interest rate assumption of 7.8 percent. One should note that Wilshire's assumptions range over a conservative 10-plus year time horizon, while pension plan interest rate assumptions typically project over 20 to 30 years.
About Wilshire Associates
Wilshire Associates, a leading global, independent investment consulting and services firm, provides consulting services, analytics solutions and customized investment products to plan sponsors, investment managers and financial intermediaries. Its business units include, Wilshire Analytics, Wilshire Consulting, Wilshire Funds Management and Wilshire Private Markets.
The firm was founded in 1972, providing revolutionary technology and acting as an early innovator in the application of investment analytics and research to investment managers in the institutional marketplace. Wilshire also is credited with helping to develop the field of quantitative investment analysis that uses mathematical tools to analyze market risks. All other business units evolved from Wilshire's strong analytics foundation. Wilshire developed the Wilshire 5000 Total Market IndexSM and became an early innovator in creating the industry's integrated asset/liability analysis/simulation models as well as the industry's practical models in risk budgeting through beta and active risk analysis. Wilshire has grown to a firm of more than 300 employees serving the investment needs of institutional clients around the world.
Based in Santa Monica, California, Wilshire provides services to clients in more than 20 countries representing more than 500 organizations with assets totaling approximately US $7 trillion.* With ten offices on four continents, Wilshire Associates and its affiliates are dedicated to providing clients with the highest quality counsel, products and services. Wilshire® is a registered service mark of Wilshire Associates Incorporated. Wilshire 5000 Total Market IndexSM is a service mark of Wilshire Associates Incorporated. Please visit http://www.wilshire.com/.
*Assets are as of December 31, 2011, based on published data in the December 24, 2012 issue of Pensions and Investments.