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Public pension funding ratios still well below pre-recession levels

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The median funded status for U.S. public pension funds was 71.5% at the end of fiscal year 2014, relatively unchanged from 2013, and only slightly above its 2012 post-recession low of 68.9%, said a new report from Fitch Ratings.

“Several years of strong market gains through 2014 offset remaining market declines and steadily rising liabilities, thus lifting reported funded ratios slightly, but they remain well below pre-recession highs,” Fitch said in the report. The median funded status in 2007 was 84.7%.

Strengthened mortality assumptions, the falling ratio of active employees to retirees and their beneficiaries, and changing discount rate calculations are helping drive states’ liabilities upward, Fitch added.

Looking at individual state’s pension burdens, Illinois ranked the worst. Illinois’ roughly $119 billion in unfunded pension liabilities amounts to 19.4% of personal income compared to a median 3.7% for all states. Kentucky, with $27 billion in unfunded liabilities, followed at 16.2% and Connecticut, with $33 billion in unfunded liabilities, came in third at 14.2%. At the other end, Wisconsin’s $605 million in unfunded liabilities amounted to only 0.2% of personal income.

However, states’ contribution practices are improving, the report noted. In fiscal year 2014, 53% of major statewide retirement systems received at least 100% of their actuarially calculated contribution, up from 42% from post-recessionary fiscal year 2011 when budget struggles reduced pension funding.

Meaghan Kilroy writes for Pensions & Investments, a sister publication of Business Insurance.