For 130 public pension plans with consistently viable data from 2006 through 2014, total unfunded liabilities as reported under Government Accountability Standards Board (GASB) guidelines increased about 150% from about $400 billion in 2006 to approximately $1 trillion in 2014, while total liabilities increased 47%, from about $2.5 trillion to roughly $3.7 trillion, according to a report by the Society of Actuaries (SOA).
Employer contributions for the same 130 plans increased 76%, from about $48 billion in 2006 to roughly $85 billion in 2014. Employee contributions increased 30% during this period, from $28 billion to $37 billion, while payroll and prices both increased 17%.
In every year studied, most of the 160 plans in the study with enough data to complete analysis for the year received insufficient employer contributions to maintain their unfunded liabilities—they experienced negative amortization. In 2014, 72% of plans experienced negative amortization, up from 65% in 2006.
Many plans with negative amortization contributed at least as much as their target contribution. However, at the peak in 2010, 76% of target contributions entailed negative amortization. By 2014, the percentage fell to 67%, roughly the same level as 2006.
For 2014, 3% of plans showed a funding surplus and 20% of plans received enough employer contributions to fund their shortfall within 30 years without it growing through negative amortization in the meantime.
The study uses data from Public Plans Data (PPD) as of February 3, 2017. PPD includes 160 state and large city public pension plans in the United States that cover roughly 27 million participants, more than 10 million of whom are currently receiving benefits.
In general, public pension plan assets come from only two sources: contributions and investment returns. The study explores in isolation whether employer contributions were effective at paying down unfunded liabilities in any given year, without regard to the many other factors that also affect funded status.
The analysis uses assets and liabilities reported to meet GASB guidelines, primarily because the data are available. Prior to 2014, the reported GASB values reflect a variety of actuarial cost methods, asset methods, discount rates and other actuarial assumptions. Values are consistent across plans only in that they were chosen to represent the plan for financial reporting. For example, the discount rates used to compute liabilities in 2014 ranged from 4.29% to 8.5%; most discount rates fell between 7.5% and 8.0%, with the average discount rate at 7.6%.Because of the variety of methods and assumptions in use, SOA warns, readers must exercise care when interpreting results. The authors anticipate that post-2014 GASB reporting requirements and additional analysis will enable determining contribution indices more consistently across plans, as well as including market-based liabilities and market-based contribution indices in future studies.
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