The funded ratio places
the unfunded liabilities in the context of the retirement system's assets.
Expressed as a percentage of a system's liabilities, the funded ratio is
calculated by dividing net assets by the actuarial accrued liabilities. The
result is the percentage of the accrued liabilities that are covered by assets.
At 100%, a system has sufficient assets to pay all benefits earned to date for
all its members. However, in a February 2012, article for Governing magazine Girard Miller states that to actually be fully funded a pension
system should have a funded ratio of 125% (calculating assets at market value).
TRS is approximately at 46%.
Source: All funded ratios are from each system’s Fiscal Year 2011
Comprehensive Annual Financial Report, which are available online.
What is an unfunded accrued liability?
An Unfunded
Accrued Liability (UAL) is also known as the Unfunded Actuarial Accrued
Liability (UAAL) and is commonly referred to as the unfunded pension liability.
An unfunded accrued liability is the difference between accrued liabilities and
the value of assets accumulated to finance an obligation. While similar to the
funded ratio, an unfunded accrued liability is commonly expressed in dollar
amounts.
However, only
looking at the dollar amount can be misleading, and another way to examine an
unfunded pension liability is to calculate the ratio of the UAL to active
employee payroll. For example, for fiscal year 2010 the UAL for the Illinois
Teachers' Retirement System was $39.84 billion, which as a percentage of
payroll is 430.8%.1 The smaller a ratio is, the stronger the system
is.
1. Source: Illinois Teachers' Retirement
System. 2010. Comprehensive Annual Financial Report.
What is the source of Illinois' unfunded pension liability?
At the end of FY 1995,
Illinois' state retirement systems' unfunded liabilities totaled almost $19.5
billion. By the end of FY 2006, unfunded liabilities totaled $40.7 billion.
According to the Illinois Commission on Government Forecasting and Accountability,
the failure to make employer contributions at a normal-cost-plus-interest level
over the ten year reporting period has been the most significant catalyst in
the increase in unfunded liabilities of all five State-funded systems. As of
2011 the unfunded liability had grown to roughly $83 billion.1
1. Source: Illinois Commission on Government Forecasting and
Accountability. 2011. Monthly Briefing, November 2011. http://www.ilga.gov/commission/cgfa2006/Upload/1111revenue.pdf. Please note that that
CoGFA brief contains two different unfunded liability figures. The difference
between the two figures is how assets are calculated. One calculation uses the
asset market value technique, whereas the other calculates assets using the
actuarial value of assets method (this is the method used by the state pension
systems).
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.