CHICAGO, Sept. 16, 2013 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published the 2013 edition of its research report, "The State of State Pension Plans," which analyzed current data for pension plans administered by all 50 states. New this year, Morningstar also included an analysis of the pension plan administered by the Commonwealth of Puerto Rico. Morningstar's municipal credit analysts found that based on two key funding metrics, the state of 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, Puerto Rico ranked the weakest among all the pension systems evaluated by Morningstar.
Morningstar's pension plan analysis focused on two key metrics:
- Funded Ratio: the ability of a pension plan to meet its obligations, which is calculated by dividing the pension plan's assets by its liabilities, and
- Unfunded Actuarial Accrued Liability (UAAL) Per Capita: the unfunded liability per capita, representing the amount each person in the state would need to pay to fully fund this unfunded liability.
"Pension plans are inherently challenging to understand because of their complexity, weak disclosure requirements, and their sheer number. In addition, pension accounting is filled with assumptions, which leads to a lot of uncertainty. 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. "We've seen the funded levels of state pension plans continue to decline during the last year, albeit modestly, and the bankruptcy filings of San Bernardino, Calif. and Detroit, Mich. may have significant effects on the national level.
"On the upside, recent data indicate that long-term investment returns are generally in line with assumptions used by most pension plans. Additionally, in recent years most states have implemented some level of pension reforms."