This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Morningstar Evaluates Fiscal Health Of 25 City Pension Plans; Finds Washington, D.C. The Strongest-Funded City Pension Plan And Chicago The Weakest

CHICAGO, Nov. 12, 2013 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published "The State of City Pension Plans 2013: A Deep Dive into Shortfalls and Surpluses," a research report that analyzes pension plans and liabilities for the 25 most populous U.S. cities. Morningstar's municipal credit analysts found that the city of Washington, D.C. had the strongest-funded city pension plan system among 25 cities, while Chicago had the weakest-funded plan.

Similar to Morningstar's annual report about the fiscal health of state pensions systems, the company's evaluation of city pension plans found great disparity in funding among the 25 most populous U.S. cities, though U.S. states are slightly better funded than cities on a median basis.

"We focused on the 25 most populous cities because they are major financial centers and play an important role in the overall economy and the larger municipal bond market," Rachel Barkley, municipal credit analyst for Morningstar, said. "While municipal bankruptcies are rare, the recent cases of Stockton and San Bernardino in California, along with the City of Detroit, may have significant impact on the national level as we see how the federal bankruptcy court will view state constitutional protections of retirement benefits."

Additional key conclusions from Morningstar's research report about city pension plans include:
  • The 25 most populous U.S. cities have more than $125 billion of unfunded pension liabilities;
  • Twenty-two of the largest cities have the majority of their pension liabilities tied to a pension plan where the city is the major participant, which means the pension liability will have to be funded either solely or mainly by the city;
  • Approximately half of the cities evaluated in Morningstar's report contributed the full Annual Required Contribution (ARC), or the required dollar amount a city would need to pay to fund employee benefits earned in the last fiscal year;
  • San Jose, Calif.'s 2012 pension contribution was 29.7 percent of general fund spending, the highest among the largest 25 cities;
  • Memphis, Tenn. made the smallest pension contribution in 2012 of 3.1 percent of general fund spending;
  • Three cities have a funded ratio—the pension plan's assets divided by its liabilities—of more than 90 percent: Detroit, Mich., San Antonio, Texas, and Washington, D.C.;
  • Washington D.C. is the strongest among the cities reviewed in the report, with funding for its pension plans above 100 percent;
  • Seven of the evaluated cities fall below Morningstar's fiscally sound threshold of a 70 percent funded ratio; and
  • Chicago is the weakest-funded city pension system among the cities reviewed in the report, and has the lowest funded ratio of 35.2 percent.

Morningstar's city pensions research report includes analyst commentary about annual budgetary pressures, pension reform, the effects of municipal bankruptcies, and red flags. Morningstar analysts also compiled a number of key metrics and data for the pension plans of the 25 most populous U.S. cities, including actuarial assets, actuarial accrued liability, funded ratios, Unfunded Actuarial Accrued Liability (UAAL) per capita, annual city contributions, annual pension contributions as a percentage of spending, and net outstanding debt.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs