Pensions and Investments (Yes. I read this shit) reports that the average funding ratio of the 100 largest U.S. public pension systems slipped to 71.9% in fiscal year 2017, the lowest since 2005.
The funding ratio describes the pension systems’ liability, what is owed, the unfunded portion of the pension systems.
There are essentially three sources of revenue into a pension system. There is the employee contribution. There is the employer contribution. And there is the return on investment.
Nationally, pensions have received increases in two of those areas and have received less funding in one of those areas.
Shall we guess?
Investments showed a median 13.22% return for fiscal 2017, compared to 1.25% in fiscal 2016. Five-year annualized returns were also up in 2017, at 9.1%, compared to 7.29% the previous year, while 10-year returns of 5.55% came close to the 5.7% notched in fiscal 2016.
Contributions were up as well, driven entirely on the employee side. In fiscal 2017, employee and employer contributions totaled $143.7 billion, up 1.2% from the previous year. Employer contributions for 2017 dipped 2% from the previous year, to $99.2 billion, while employee contributions rose 9.14%, to $44.5 billion.
Illinois is the worst of the worst, according to P&I.
At the bottom of the list are state and municipal plans in Illinois, including the three plans overseen by the $17.6 billion Illinois State Board of Investment and the Chicago Municipal Employees’ Annuity and Benefit Fund. Those plans are the Illinois General Assembly Retirement System, the Illinois Judges’ Retirement System and Illinois State Employees’ Retirement System, which had funding ratios of 14.9%, 35.6% and 35.5%, respectively, as of June 30, 2017, the most recent data available. The $4.5 billion Chicago Municipal Employees’ Annuity and Benefit Fund had a funding ratio of 27.4% as of Dec. 31, 2017.
Illinois’ Teacher Retirement System is funded at about 40% with Tier 1 employees making a 9% contribution every paycheck.