"Despite the robust investment returns since 2004, annual growth in unfunded pension liabilities has outstripped these returns," Moody's warns in its latest report on the state of public pension systems. As Bloomberg reports, the 25 biggest systems by assets averaged a 7.45% return from 2004 to 2013, but liabilities tripled over the same period leaving them facing a $2 trillion shortfall as investment returns can’t keep up with ballooning obligations. The top 25 funds account for 40% of the entire US public pension system with Illinois, Kentucky, Connecticut, and Louisiana at the top of the 'most underfunded' list.
As Bloomberg reports,
The 25 largest U.S. public pensions face about $2 trillion in unfunded liabilities, showing that investment returns can’t keep up with ballooning obligations, according to Moody’s Investors Service.
The 25 biggest systems by assets averaged a 7.45 percent return from 2004 to 2013, close to the expected 7.65 percent rate, Moody’s said in a report released today. Yet the New York-based credit rater’s calculation of liabilities tripled in the eight years through 2012, according to the report.
“Despite the robust investment returns since 2004, annual growth in unfunded pension liabilities has outstripped these returns,” Moody’s said. “This growth is due to inadequate pension contributions, stemming from a variety of actuarial and funding practices, as well as the sheer growth of pension liabilities as benefit accruals accelerate with the passage of time, salary increases and additional years of service.”
U.S. states and cities are contending with underfunded worker retirement systems. The 18-month recession that ended in June 2009 wiped out asset values and forced cuts to contributions. Now, liabilities are crowding out spending for services, roads and schools.
The largest systems included in the Moody’s report manage about 40 percent of the $5.3 trillion in U.S. public pensions. They include the California Public Employees’ Retirement System, the California State Teachers’ Retirement System and the New York State and Local Employee Retirement System. The New York plan had the best 10-year average return among the 25 systems, at 8.67 percent.
Ranking the most underfunded pension funds in the nation...