What’s New in Public Pension Funding

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A small group of researchers at the Center for Retirement Research, which sponsors this blog, produces a large volume of analysis of the nation’s state and local government pension funds.

Their work isn’t typical of the personal finance information that appears in this blog. But it turns a bright light on the financial condition of the pension funds that millions of state and local government workers and retirees rely on. The bottom line, according to these studies, is that while some funds are in poor condition, many more are managing.

The following are short descriptions of the Center’s recent reports, with links to the full reports:

  • The big picture is updated in the new brief, “The Funding of State and Local Pensions: 2015-2020.” Eight years after the financial crisis, new data have confirmed that pension plan funding stabilized in 2015.  And despite poor stock market performance last year, plan funding improved slightly in 2015 under traditional accounting methods. On the other hand, funding is slightly lower under new accounting rules that require the plans’ financial statements to value their investment portfolios at market values.

    The appendix in this brief provides funded levels for 160 individual plans in the Center’s public pension database.

  • “Are Counties Major Players in Public Pension Plans?” The answer in this report is no, with the exceptions of California, Maryland and Virginia, where counties account for about 15 percent of pension assets.
  • FigureWhile retiree health plans are quickly disappearing at private employers, they remain prevalent in the public sector. These plans are not fully funded, and their unfunded liabilities are relatively large – equivalent to 28 percent of all liabilities for unfunded public pension plans – according to a March report, “How Big a Burden Are State and Local OPEB Benefits?”
  • New accounting rules, known as GASB 68, require city pension funds that are joint participants in plans administered by their state, to transfer their net unfunded liabilities from the state’s to the local government’s books.

    One question is whether recognizing these large liabilities in a city’s accounting will give them more incentive to reduce their unfunded liabilities, according to “GASB 68: How Will State Unfunded Pension Liabilities Affect Big Cities?”

  • Connecticut officials are considering additional reforms, this time to pension funding methods aimed at reducing the large liability in its state employees’ retirement system. “Forensics and the Future of a Connecticut Pension Plan” provides insight into the root of the problem – and one possible solution.

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1 comment
Larry Littlefield

“A significant source of the liability is the “legacy debt” built up before the State began pre-funding its pensions in the 1970s.”

Good to see the CRR is willing to take its analysis back further than 2001.

In cases in which taxpayer underfunding, rather than retroactive pension increases and spiking, can be blamed.

How does the CRR handle paying the “guaranteed” rate of return of 7.0% for NYC teachers in their additional 401K-like annuity plan, funded out of the pension?

Or the $12,000 per year “Christmas Bonus” for NY cops and firefighters that started as a way to distribute “excess returns” in up years and was then converted to an automatic guarantee in the year 2000?

And how does your evaluation account for future retroactive pension increases, and the fact that these could happen anytime at 3 am and then become absolutely guaranteed into the future regardless of the consequences?

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