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US City & County Retirement system funding levels up in 2017, says Wilshire Consulting

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Wilshire Consulting estimates the funding ratio for the city and county pension plans it studies was 71 per cent in fiscal 2017, up from 67 per cent in fiscal year 2016, reversing two consecutive years of declines.

The Wilshire 2018 Report on ‘City & County Retirement Systems: Funding Levels and Asset Allocation’ is based upon data gathered by Wilshire from the most recent financial and actuarial reports available and includes 107 city and county retirement systems. Of these 107 systems, 96 systems reported actuarial values on or after June 30, 2017. This is Wilshire Consulting’s sixteenth report on the financial condition of city and county sponsored defined benefit retirement systems.
 
“The increase in global equity values for the twelve-month period ending June 30, 2017 was a primary driver of the improved funding levels. Robust investment returns and contributions also drove asset values higher for the year,” says Ned McGuire (pictured), Managing Director and a member of the Pension Risk Solutions Group of Wilshire Consulting. “With that, we found that 93 per cent of the plans in this year’s study have market value of assets less than pension liabilities or are underfunded.”
 
Aggregate pension liabilities grew by 4 per cent, from USD697.3 billion in 2016 to USD725.4 billion in 2017. Despite the increase in aggregate liabilities, pension plans saw a decrease in aggregate shortfall by USD22.7 billion, from USD233.3 to USD210.6 billion. This decline in the aggregate shortfall is the result of the significant increase in aggregate assets by over 10 per cent, from USD464.0 billion in 2016 to USD514.8 billion in 2017. The estimated aggregate value is the highest since Wilshire began reporting on City and County-sponsored retirement system funding levels. 
 
“Discount rates have trended lower over the past several years and continued for this year’s study as nearly half of the plans lowered their discount rate,” McGuire adds. “The range for discount rates this year is 5.13 per cent to 8.50 per cent with a median of 7.25 per cent, which is down 25 basis points from last year.” 
 
On average, city and county pension portfolios have a 64.3 per cent allocation to equities, including real estate and private equity, a 24.7 per cent allocation to fixed income, and a 11 per cent allocation to other assets. This equity allocation is somewhat lower than the 65.9 per cent equity allocation a decade prior in 2007.
 

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