Data and Research

State and Local Governments Increased Pension Contributions by 6.5%

Their contributions rose by $8.5 billion.

By Lee Barney editors@plansponsor.com | May 26, 2017

State and local governments increased their contributions to pensions in 2016 by 6.5%, or $8.5 billion, according to the U.S. Census Bureau’s report, “The 2016 Annual Survey of Public Pensions.” In total, state and local governments contributed $140.6 billion to their pension plans in 2016, up from $132.0 billion in 2015.

Employees also increased their contributions in 2016, to $51.0 billion, a 7.1% increase from $47.7 billion in 2015. Government and employee contributions, together, amounted to $191.6 billion in 2016.

Larger contributions by both government entities and employees are necessary to keep public pensions well funded, according to the Center for State and Local Government Excellence, which examined the practices of four well-funded government pensions. It is also necessary to increase employees’ retirement age to 65, according to the Center.

State governments contributed a total of $59.8 billion to their plans in 2016, and local governments, $47.5 billion. Earnings, however, dropped considerably, by $105.7 billion, to $49.9 billion—a 67.95% decline. This caused total assets in state and local government pension plans to decrease by 1.6% to $3.7 trillion, down from $3.8 trillion a year earlier.

The total number of beneficiaries of state and local government pensions rose by 3.3% in 2016, to 10.3 million people, up from 10.0 million in 2015 and 9.9 million in 2014. The value of their benefits rose 5.4% in 2016, to $282.9 billion, up from $268.5 billion.

In 2016, state and local governments paid out $303.6 billion from their pension plans, with $282.9 billion of that being in benefits. The data also shows how state and local governments invest their pensions. Of the $3.7 trillion in total assets, $3.1 trillion is invested in securities.

In 2016, state and local governments had $4.1 trillion in pension obligations—$400 billion more than the $3.7 trillion in their current holdings. In 2016, total assets in both defined benefit and defined contribution plans grew to $19.1 trillion, according to data from the Federal Reserve.

Fourth Quarter Data

The U.S. Census Bureau also released fourth quarter data for the 100 largest public employee pension systems. Their assets totaled $3,396.7 billion at the end of the fourth quarter, a 4.4% increase from the third-quarter level of $3,383.8 billion. Compared to the fourth quarter of 2015, assets increased 4.2% from $3,260.5 billion.

In the quarter, the pension plans increased their cash and short-term investments sharply compared to the third quarter, by 16.7% to $136.6 billion, up from $117.1 billion. Corporate bonds had a quarter-to-quarter decrease of 2.7%, from $431.0 billion, to $419.5 billion.

The market value of international securities decreased 1.1%, from $652.0 billion, to $644.6 billion, and corporate stocks had a quarter-to-quarter increase of 1.1% in market value, from $1,229.5 billion to $1,242.8 billion. Federal government securities had a quarter-to-quarter increase of 0.5% in market value, from $265.0 billion to $266.4 billion.

Employee contributions rose 22.5% to $12.0 billion, up from $9.8 billion in the third quarter. Year-over-year, these contributions increased 4.2% from $11.6 billion in the fourth quarter of 2015. Total benefit payments saw a quarter-to-quarter decrease of 2.1%, from $65.9 billion to $64.5 billion. However, year-over-year, they increased 6.1%, up from $60.8 billion in the fourth quarter of 2015.

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