States' Pension Funds Called Fiscally Sound

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State governments have made progress in shoring up public-employee-retirement systems in recent years, but teachers' plans still tend to be somewhat underfunded, according to a report released this month by a California consulting firm.

"By and large, state retirement systems are in excellent financial health," says the study by Wilshire Associates Inc., a Santa Monica firm that counsels public pension systems.

The authors acknowledge that the results of their study differ from previous ones indicating the inadequacy of retirement funds.

The firm found that while state-employee funds on average had assets equal to 117 percent of their accumulated-benefit obligation, teachers' funds had assets equal to only 99 percent of their liabilities.

On another measure, the projected-benefit obligation--which takes into account expected salary increases in the future--the average teachers' system had assets covering only 91 percent of its p.b.o., compared with 109 percent for state employees' funds.

The report notes that teachers' systems are generally more conservative in reporting their liabilities, thus understating their relative financial strength.

Despite those lower funding ratios, teachers' trusts "as a group have achieved adequate funding levels," the report indicates.

Indeed, the strength of teachers' funds in some states has encouraged policymakers to look to them as a resource for easing broader fiscal woes. (See Education Week, Nov. 7, 1990.)

As the report notes, however, there are significant disparities both among and within states.

California's public employees, for instance, boast the third-largest pension surplus in the nation, while its teachers' fund has the largest deficit.

In general, public pensions in the New England states are in the worst shape, and pensions in the mid-Atlantic region are in the best condition, according to the report.

Wilshire Associates found that the most-underfunded teachers' systems were in West Virginia, Maine, the District of Columbia, and Indiana.

"Clearly, while over all the state retirement systems are in good health, some states will have to make sizable future contributions to substantially underfunded plans," the report suggests.--kd

Vol. 10, Issue 13

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