The health of struggling U.S. public pension funds improved slightly in 2013, boosted by the booming stock market, according to a report by Wilshire Consulting.

In the annual report, Wilshire found 134 state retirement funds were capable of covering about 75% of their pension obligations, up from 72% in 2012. Yet 96% of those plans were considered underfunded with assets valued less than their liabilities.

"Global stock markets rallied strongly over the twelve months ended June 30, 2013, offsetting weaker performance by global fixed income and allowing pension asset growth to outdistance the growth in pension liabilities over fiscal 2013," stated Russ Walker, vice president at Wilshire Associates, and an author of the report.

That strong stock market returns lifted the value of pension assets to their highest level since 2008, ahead of the financial crisis.

Experts say the slight year-over-year improvement shouldn’t be mistaken as a sign the public pension system is fixed.

Michael Sweet, a bankruptcy attorney with Fox Rothschild, said funding problems will remain as long as public pensions are so closely aligned with often-volatile stock markets.

“We can expect there will be another market downturn and this problem will reappear,” Sweet said.

Market fluctuations “create extraordinary problems for local governments,” Sweet said, because those governments have to continue paying into their pension funds even as stock markets tumble, as was the case in 2008.

According to Wilshire, state pension portfolios have, on average, a 65% allocation to equities or stocks – including real estate and private equity – and a 35% percent allocation to fixed income and other non-equity assets.

The threat of underfunded pensions has led to political battles at all government levels across the U.S. over whether public pensioners might have to contribute more to their pensions to take some of the burden off tax payers.

The S&P 500 and Dow Jones Industrial Average have returned to highs achieved before the crisis, propelled in part by stimulus policies initiated by the Federal Reserve that have pumped cash into the economy and encouraged investment in riskier assets such as stocks.

Public pension funding levels hit 81% in 2008 then plummeted in sync with falling stock markets in 2009. The 10-year high of 95% was reached in 2007, with a low of 64% in 2009.

For the 134 state retirement systems that reported actuarial data for 2012, pension assets were $2.509 trillion and liabilities stood at $3.496 trillion, according to the report. The funding ratio for these 134 state pension plans was 72% in 2012.

Of these same plans, 96% have market value of assets less than pension liabilities, or are underfunded, the report states. The average underfunded plan has a ratio of assets-to-liabilities equal to 70%.

Sweet said those latter figures aren’t likely to improve until pension reform is enacted that distances pension funds from volatile stock markets.

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