State and local pension plans, and the struggles many have regarding funding, have generated plenty of attention. Some background information about them helps illustrate the depth and breadth of the problem and brings into sharper relief the importance of state and local government pension plans, as well as their solvency and strength.
This all matters not only because it represents costs to the states and local governments; these figures are more significant in light of how large a chunk of the workforce their employees represent and how many participants their pension plans have.
According to the National Conference of State Legislatures (NCSL), those employees comprise almost 14% of the U.S. workforce; not only that, many of them are not covered by Social Security. Overall, approximately one-quarter of them are not; for teachers it’s double that percentage, and two-thirds of state and local government public safety officers and firefighters are not.
There were nearly 20 million members in state and local pension plans as of 2014, the U.S. Census Bureau reports in its Annual Survey of Public Pensions: State and Locally Administered Defined Benefit Data Summary Report: 2014. Those 230 state plans and 3,742 local plans paid periodic benefits to approximately half of those members in 2014.
Dollars and Cents
Cash and investment holdings in state and local plans amounted to $3.7 trillion in 2014. An impressive figure, perhaps, but those plans paid much more in benefits than they took in:
Contributions: $167 billion, $45.5 billion of which were from employees
Payments: $273 billion, 92.7% of which were benefits payments
And according to the NCSL, in 2014, state and local government plans’ cash outflows far exceeded inflows:
Cash inflows: $147.3 billion
Cash outflows: $240.9 billion
There was some good news, however, according to the NCSL: in 2014, state and local governments’ plans had investment gains of $448.6 billion.
Funded Ratios
State and local governments’ funded ratios vary from plan to plan, notes the NCSL, and are affected by a variety of factors, such as global equity markets, stock market fluctuations, and contribution and benefit levels. Nonetheless, the NCSL argues, they are another useful gauge of plans’ health, since they provide a snapshot of their progress toward long-term funding.
The NCSL reports that with the exception of only one year, in the aggregate, public pension funding levels have been falling since the 2001 peak of 103%, standing at 72% in 2013.
Annual Required Contributions
Aside from raw funding level figures, funding commitment — the degree to which required contributions to the plan are regularly and fully made — is also a critical factor in assessing the current and future health of a pension plan.
The NCSL reports that state and local governments collectively do not meet their annual required contribution (ARC). According to the NCSL, at least 10% of their ARCs have been unpaid each year since 2006, and that figure stood at 15.5% last year.
This all matters not only because it represents costs to the states and local governments; these figures are more significant in light of how large a chunk of the workforce their employees represent and how many participants their pension plans have.
According to the National Conference of State Legislatures (NCSL), those employees comprise almost 14% of the U.S. workforce; not only that, many of them are not covered by Social Security. Overall, approximately one-quarter of them are not; for teachers it’s double that percentage, and two-thirds of state and local government public safety officers and firefighters are not.
There were nearly 20 million members in state and local pension plans as of 2014, the U.S. Census Bureau reports in its Annual Survey of Public Pensions: State and Locally Administered Defined Benefit Data Summary Report: 2014. Those 230 state plans and 3,742 local plans paid periodic benefits to approximately half of those members in 2014.
Dollars and Cents
Cash and investment holdings in state and local plans amounted to $3.7 trillion in 2014. An impressive figure, perhaps, but those plans paid much more in benefits than they took in:
Contributions: $167 billion, $45.5 billion of which were from employees
Payments: $273 billion, 92.7% of which were benefits payments
And according to the NCSL, in 2014, state and local government plans’ cash outflows far exceeded inflows:
Cash inflows: $147.3 billion
Cash outflows: $240.9 billion
There was some good news, however, according to the NCSL: in 2014, state and local governments’ plans had investment gains of $448.6 billion.
Funded Ratios
State and local governments’ funded ratios vary from plan to plan, notes the NCSL, and are affected by a variety of factors, such as global equity markets, stock market fluctuations, and contribution and benefit levels. Nonetheless, the NCSL argues, they are another useful gauge of plans’ health, since they provide a snapshot of their progress toward long-term funding.
The NCSL reports that with the exception of only one year, in the aggregate, public pension funding levels have been falling since the 2001 peak of 103%, standing at 72% in 2013.
Annual Required Contributions
Aside from raw funding level figures, funding commitment — the degree to which required contributions to the plan are regularly and fully made — is also a critical factor in assessing the current and future health of a pension plan.
The NCSL reports that state and local governments collectively do not meet their annual required contribution (ARC). According to the NCSL, at least 10% of their ARCs have been unpaid each year since 2006, and that figure stood at 15.5% last year.
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