The funded status of many public pension plans has improved, according to a recent report. But mitigating that good news is another study that suggests that lengthening lifespans will be a longer-term challenge for those plans. The Center for State and Local Government conducted the research and prepared both studies and reports.
In “The Funding of State and Local Pensions: 2014-2018” the center found that, among the sample of 150 state and local pension plans it studied, the plans’ ratio of assets to liabilities improved from 72% in 2013 to 74% in 2014. Assets grew faster than liabilities in 2014 — 7% and 4.5%, respectively. It attributed the improvement to positive stock market performance since 2009 and state and local governments increasing their annual required contributions from 82% in 2013 to 88% in 2014.
The center expects the gradual improvement to continue. It assumes that the average growth for 2015-2018 will match that of the period 2001-14. It also assumes that the growth in liabilities for 2015-2018 will stay at current levels, at least in part because benefit reductions create longer-term savings. If those assumptions hold, it says, plans should be 81% funded by 2018.
There are some caveats. Despite the overall improvement, the researchers did acknowledge that there were large plans that were poorly funded in 2014, such as those of Connecticut and Illinois. And it acknowledges that there are investment firms that expect returns on the investments the plans have made to be lower than they have been in recent years, yielding funding of 77% by 2018.
And another center study, “How Will Longer Lifespans Affect State and Local Pension Funding?,” discusses another long-term factor that will challenge the health of pension plans — increasing longevity.
The report warns that public plans underestimate life expectancy, and that incorporating into projections future increases in longevity would increase expected lifespans by 2.3 years — which, in turn, could reduce the funded ratio of public plans.
In “The Funding of State and Local Pensions: 2014-2018” the center found that, among the sample of 150 state and local pension plans it studied, the plans’ ratio of assets to liabilities improved from 72% in 2013 to 74% in 2014. Assets grew faster than liabilities in 2014 — 7% and 4.5%, respectively. It attributed the improvement to positive stock market performance since 2009 and state and local governments increasing their annual required contributions from 82% in 2013 to 88% in 2014.
The center expects the gradual improvement to continue. It assumes that the average growth for 2015-2018 will match that of the period 2001-14. It also assumes that the growth in liabilities for 2015-2018 will stay at current levels, at least in part because benefit reductions create longer-term savings. If those assumptions hold, it says, plans should be 81% funded by 2018.
There are some caveats. Despite the overall improvement, the researchers did acknowledge that there were large plans that were poorly funded in 2014, such as those of Connecticut and Illinois. And it acknowledges that there are investment firms that expect returns on the investments the plans have made to be lower than they have been in recent years, yielding funding of 77% by 2018.
And another center study, “How Will Longer Lifespans Affect State and Local Pension Funding?,” discusses another long-term factor that will challenge the health of pension plans — increasing longevity.
The report warns that public plans underestimate life expectancy, and that incorporating into projections future increases in longevity would increase expected lifespans by 2.3 years — which, in turn, could reduce the funded ratio of public plans.
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