Who’s watching your client’s pension? At the state level, who knows?
A new report from Morningstar notes the “inherent challenge” in understanding and studying the current state of …well, state pensions, mainly due to their complexity, weak disclosure requirements, and their sheer number. In addition, pension accounting is filled with assumptions, which leads to a lot of uncertainty. Morningstar does add that this might be about to change, however.
“During the last few years, there has been a lot of negative attention focused on pensions, but new standards approved by the Governmental Accounting Standards Board could spark some significant changes,” Rachel Barkley, municipal credit analyst for Morningstar, said in a statement. “We’ve seen the funded levels of state pension plans continue to decline during the last year, albeit modestly."
She noted the bankruptcy filings of San Bernardino, Calif., and Detroit may have significant effects on the national level.
Morningstar’s municipal credit analysts found that based on two key funding metrics, Wisconsin had the strongest-funded state pension plan system while Illinois had the weakest among all 50 states, for the second year in a row. However, in a break from past reports, the Chicago-based research firm analyzed Puerto Rico as well, and found it ranked as the weakest among all the pension systems evaluated by Morningstar.
The two key metrics were:
“On the upside, recent data indicate that long-term investment returns are generally in line with assumptions used by most pension plans,” Barkley added. “Additionally, in recent years most states have implemented some level of pension reforms.”
Additional key conclusions from Morningstar’s review include:
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