UpFront | Published in July 2012

Coming Up Short

Public pensions struggle to make required contributions

By Tara Cantore | July 2012

An issue brief from the Center for State and Local Government Excellence looks into the effects the 2008 to 2009 stock market decline had on state and local pensions. The brief, “The Funding of State and Local Pensions 2011 – 2015,” finds that a number of states and localities have been having trouble paying their full annual required contributions (ARCs). In 2011, employer contributions equaled 79% of the required payments.

The brief reveals a wide variation in the funded status of pension plans. While 36% of the 126 state and local plans in the sample have a funded ratio of more than 80%, a majority have slipped below that level. A few pension plans face serious problems that must be addressed; most are making modest changes that are needed to stabilize employer costs and ensure that pension promises can be kept.

In other key findings: During 2011, the funded status of public plans slipped slightly, from 76% to 75%. This decline reflected slow asset growth due to actuarial smoothing, which was partly mitigated by an unexpected reduction in liability growth. Going forward, the funded ratio is projected to remain steady next year and then gradually improve as the market meltdown phases out of the calculations.

The brief was written by Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, Madeline Medenica and Laura Quinby of the Center for Retirement Research at Boston College.