Standard & Poor’s Reports on State Pension Funding Levels

Kennedy Says Reducing UAL Important for Health of Retirement Systems

BATON ROUGE, LA – A recently released Standard & Poor’s report shows the unfunded accrued liability (UAL) for Louisiana’s principal state pension funds was roughly $10.8 billion this past year, amounting to a per capita UAL of $2,385, according to State Treasurer John Kennedy. Principal state pension funds included in the S&P report were public employees’ retirement systems and teachers’ retirement systems.

“To put things into perspective, the S&P report shows that per capita state debt was $732 last year,” said Treasurer Kennedy. “The per capita UAL for these retirement systems was more than three times that amount. Reducing the UAL is extremely important for the health of our retirement systems. It is also important to the financial strength of the state as a whole, especially because the state is on the hook for these payments.”

On a state by state basis, S&P reports that the mean state debt per capita was $933 and the mean UAL per capita was $1,378. The UAL is the shortfall in the amount of money owed for current and future retiree benefits exceeding the amount of money currently invested in and contributions going into the retirement systems. Decreased employee contributions, increased retirement benefits (like cost of living adjustments), and investment losses can all have a negative impact on the UAL.

Another measure of the financial health of principal state pension funds is the funded ratio. The funded ratio is calculated by dividing assets by liabilities, so the higher the percentage the better. The mean funded ratio for state pension funds nationwide was 81.8 percent in this year’s S&P report. The funded ratio for teachers’ and public employees’ retirement systems in Louisiana was 63.5 percent.

“Simply put, these retirement systems have more money going out than there is coming in,” said Treasurer Kennedy. “We can make a significant step toward fixing the problem by using some of the state’s budget surplus to shore up our retirement systems. It would be the fiscally responsible thing to do, especially because the rating agencies will begin taking a closer look at the UAL when considering the state’s credit rating.”

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