Local Government Pension Funding Lags Behind States’

January 31, 2013 (PLANSPONSOR.com) – Local government-administered pension plans have not yet caught up with the funded levels of state-administered plans, according to a report.

An issue brief from the Center for State and Local Government Excellence, “Locally-Administered Pension Plans, 2007-2011,” says 2011 data found locally-administered pension plans continue to be slightly less funded (72%) than state-run plans (76%). This finding was puzzling to researchers because local plan sponsors generally pay a larger share of their annual required contribution than state plan sponsors.  

Upon further analysis, the researchers found state plans have historically earned higher returns because they invest more in risky assets. “For mature plans with substantial assets, higher returns more than offset lower contributions,” the report says.  

However, the research also showed that during the financial crisis, local plans were able to narrow the funding gap because their less risky portfolios fared better.  

The issue brief is here.