Last updated: 12:59 / Monday, 16 September 2013
Wisconsin the Strongest

Puerto Rico is the Weakest-Funded State Pension System According to Morningstar

Puerto Rico is the Weakest-Funded State Pension System According to Morningstar

Morningstar 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."

Additional key conclusions from Morningstar's review of state pension plan systems include:


  • Wisconsin remains the strongest-funded state pension system; the state's funded ratio is 99.9 percent, a 0.1 percent increase from last year, and the liability per capita is $18, which fell $3 from 2012;
  • Illinois continues to have the weakest-funded state pension system, with a 40.4 percent funded ratio, falling 3 percent compared to last year, and a liability of $7,421 per capita, an increase of more than $900 compared to 2012;
  • Puerto Rico's pension system is weaker than Illinois', with a funded ratio of 11.2 percent and a liability of more than $8,900 per capita. According to the Commonwealth, all three of its pension plans are projected to deplete their assets over the next few years, but recently passed reforms may mitigate the losses;
  • Twenty-six states and Puerto Rico fall below Morningstar's fiscally sound threshold of a 70 percent funded ratio; Puerto Rico has the lowest funded ratio;
  • Twelve states have an aggregate funded ratio of 80 percent or more, led by Wisconsin for the second year in a row;
  • Seven states have a UAAL of less than $100 per capita. Wisconsin has the lowest UAAL per capita for the second year in a row. Thirteen states have a UAAL under $1,500 per capita, which is Morningstar's threshold for "Good" unfunded liability levels; and
  • Alaska had the highest UAAL per capita for the second year in a row, currently more than $10,000.

Morningstar's state pensions research report also includes a discussion of trends, pension reform, recent bankruptcies, shortcomings in disclosure and transparency, and federal legislation. 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.

For a video and article highlighting this year's research findings, please visit