CHICAGO, Nov. 26, 2012 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its research report, "The State of State Pension Plans: A Deep Dive into Shortfalls and Surpluses," which analyzed current data for pension plans administered by all 50 states. Morningstar's municipal credit analysts found that based on two key funding metrics, the state of Wisconsin had the strongest-funded pension plan system, while Illinois had the weakest.
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.
"Our analysis of the fiscal health of state pension plan systems across the country found that creditworthiness varies greatly and is heavily dependent on the funded ratio and the unfunded liability per capita—we look at both key metrics to evaluate each state's system. We find the UAAL metric useful because it represents the burden on residents, though it isn't widely used in the industry as an evaluation tool," said Rachel Barkley, municipal credit analyst for Morningstar. "Not only do state pension plan systems represent the state's financial obligations, but they are often structured as umbrella plans that also cover employees in the state's local government bodies. Because pension liabilities represent significant long-term obligations for government entities, pensions are an important element in determining a municipal entity's credit quality."
Jeff Westergaard, Morningstar's director of municipal analytics, added, "We've heard much discourse on the subject of pensions over the last few years, resulting in more confusion than clarity on how to view this important area of municipal finance. Our hope is that Morningstar's analysis will help cut through the clutter and offer logical, clear analysis for investors to understand each state's situation and the broader implications of their pension system's financial status."
Additional key conclusions from Morningstar's review of state pension plan systems include:
- Wisconsin had the strongest-funded pension system; the state's funded ratio is 99.8 percent and the liability per resident is $23. Illinois had the weakest-funded system, with a 43.4 percent funded ratio and a liability of $6,505 per resident;
- Twenty-one states fall below Morningstar's fiscally sound threshold of a 70 percent "funded ratio;" Illinois has the lowest funded ratio;
- Seven states have an aggregate funded ratio of 90 percent or more, led by Wisconsin;
- Fourteen states have a UAAL under $1,500 per capita, Morningstar's threshold for "Good" unfunded liability levels. Wisconsin has the lowest UAAL per capita;
- Twenty states have a UAAL above $3,000 per capita; Alaska has the highest UAAL per capita, currently more than $10,000.
Morningstar's state pensions research report also includes an evaluation of trends across the country, challenges of comparing state pension plans, shortcomings in disclosure and transparency, and expectations about pension reform. Morningstar analysts also compiled aggregate pension data by state, including assets, funded ratio, and UAAL per capita, along with individual pension plan data by state.
An excerpt of "The State of State Pension Plans" is available at http://global.morningstar.com/statepensions. For a video and article highlighting the research findings, please visit http://www.morningstar.com/goto/muni-research. For more information about Morningstar's analysis of government pension plans, the company's "State and Local Pensions 101" overview is available at http://global.morningstar.com/pensions101.
Morningstar plans to update its research on state pension plans annually. The company launched analyst research on 100 municipal obligors and bond reports for approximately 1 million municipal bonds earlier this year. More information about Morningstar's municipal bond research is available at http://global.morningstar.com/muniresearch.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 385,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has approximately $195 billion in assets under advisement and management as of Sept. 30, 2012. The company has operations in 27 countries.
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