Stock Gains Lift State Pension Funding for First Time Since 2014

(Bloomberg) -- The health of U.S. state pension systems improved for the first time since 2014 because of global stock-market gains, according to Wilshire Consulting.

Pensions had 70.2 percent of assets required to meet obligations to retirees in fiscal 2017, an increase from 67.4 percent in the prior year, the Santa Monica, California-based firm said in its annual state funding report. That improvement may ease the financial pressure on states from their retirement systems, given that when investment returns lag they need to boost their annual contributions to cover the gap.

The rally that pushed global equity markets to new highs boosted state pension assets to $3.2 trillion, the most in at least 20 years, the firm said. International stocks rose 24.5 percent in the 12 month period, ending June 30, 2017, Wilshire said. State pension assets grew by more than 9 percent compared to the previous year, while liabilities rose 5 percent to $4.5 trillion, leaving a $1.35 trillion deficit.

Despite the strong gains, pensions have been steadily reducing their expected rates of return, a step that will require them to pay more into the retirement systems. Almost half of the 130 retirement systems Wilshire analyzed reduced their discount rates in fiscal 2017. The median assumed rate of return declined to 7.25 percent from 7.5 percent in fiscal 2016.

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

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, William Selway, Michael B. Marois

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