New Research Examines Funded Ratio Of State, Local Public Pension Plans

A new analysis of public pension plans finds that the funded ratio edged up slightly to 73 percent in fiscal year 2018. Additionally, the research indicates that liability growth for the pension plans slowed dramatically from 2001 to 2018, but still exceeded asset growth over the period.

The key findings of the research are as follows:

• The funded ratio of state and local pensions edged up to 73 percent in FY 2018, but has been largely flat for several years and is well below its peak in 2001.
• Liability growth has steadily declined during the past two decades – from 7.7 percent in 2002 to 3.8 percent in 2018 – but asset growth has been even slower.
• Given these trends, if plan sponsors want to improve plan funded ratios, a key challenge is to increase their asset base through contributions.
• One way forward is to adopt more stringent funding methods such as level-dollar amortization and shorter amortization periods.
• Another, more important, change is to lower assumed investment returns, which would help ensure funding progress by further raising required contributions.

These findings are contained in a new brief from the Center for State and Local Government Excellence (SLGE) and the Boston College Center for Retirement Research (CRR), Update on the Funded Status of State and Local Pension Plans – FY 2018. The research is available here. This brief is part of an ongoing, annual research series that tracks the fiscal health of public pensions across the US.

This research was conducted by CRR researchers Jean-Pierre Aubry, associate director of state and local research and Caroline V. Crawford, assistant director of state and local research. This annual update and the accompanying appendices rely on the Public Plans Database (PPD) to report on the funded status of public pensions.

The Center for State and Local Government Excellence (SLGE) helps local and state governments become knowledgeable and competitive employers so they can attract and retain a talented and committed workforce. SLGE identifies leading practices and conducts research on public retirement plans, health and wellness benefits, workforce demographics and skill set needs, and labor force development. SLGE brings state and local leaders together with respected researchers. Access all SLGE publications and sign up for its newsletter at slge.org and follow @4GovtExcellence on Twitter.