The Financial Crisis and State/Local Defined Benefit Plans

Alicia H. MunnellDan Muldoon Jean-Pierre Aubry

IB#8-19

The brief’s key findings are:

  • Prior to the financial crisis, most public pension plans were on a path to full funding.
  • But the crisis has pushed the aggregate funding ratio below 80 percent.
  • Without action, in five years the funding ratio could be as low as 59 percent or as high as 75 percent.
  • The ability to smooth pension asset values provides a buffer against the need for imminent hikes in pension contribution rates.
  • But, eventually, taxpayers will have to pay for any permanent damage done by the financial crisis.