Downturn Spurs Public DB Plan Efforts to Address Sustainability

A Government Accountability Office (GAO) tabulation of recent state legislative changes reported by the National Conference of State Legislatures (NCSL) and review of reforms in selected sites revealed the following strategies:  

• Reducing benefits: 35 states have reduced pension benefits, mostly for future employees due to legal provisions protecting benefits for current employees and retirees. A few states, like Colorado, have reduced post-retirement benefit increases for all members and beneficiaries of their pension plans. 
• Increasing member contributions: Half of the states have increased member contributions, thereby shifting a larger share of pension costs to employees.  
• Switching to a hybrid approach: Georgia, Michigan and Utah recently implemented hybrid approaches, which incorporate a defined contribution plan component, shifting some investment risk to employees.  

At the same time, GAO said, some states and localities have adjusted their funding practices to help manage pension contribution requirements in the short term by changing actuarial methods, deferring contributions or issuing bonds, actions that may increase future pension costs. Going forward, growing budget pressures will continue to challenge state and local governments’ abilities to provide adequate contributions to help sustain their pension plans.