State and local employee pension plans, which are primarily
defined benefit plans, are now under greatly increased scrutiny.
Plan funding conditions have worsened over the past number of
years, especially during the aftermath of the post-2007 recession.
The number of inadequately funded plans increased steeply during
2008-09, when the recession caused implosions in asset prices and
state tax revenues. However, the patterns of financial changes vary
considerably across the U.S. states and under alternative ways of
measuring a plan's funding status. Much of the worsening in
conditions between 2001 and 2009 occurred in states with initially
well-funded pension plans. This was not only due to economic
conditions, but to illogical accounting standards set by the
Government Accounting Standards Board.
This report provides a detailed review of the erosion that has
occurred in state and local government employee pension plans
during the last decade. Controlling for the declines in pension
plan asset values during the recent recession, it also analyzes
whether at least some of the blame for the current poor funding
conditions of plans can be assigned to insufficient contributions
by employers and employees. Finally, because pension plans are
operated by government entities that are unlikely to be shut down,
the report examines how pension funding conditions would change if
future contributions and benefits were taken into account.
Key issues covered by the report include:
- Pension plan funding: a close look at the best and worst
states.
- Analysis of what is behind the general pension funding decline
over the past decade.
- Investment management strategies taken by state and local
government pension fund boards.
- Analysis of whether employers and employees are contributing
sufficiently to funds, and if poor initial plan funding stimulates
pension contributions.
- The impact of a government's size on plan funding.
- Do pension plan funding contributions depend on federal budget
support?
- How the funding shortfalls of state and local government plans
are actually understated under standard actuarial accounting.
- How plan funding conditions in 2009 appear under the
alternative discounting of future benefit obligations.
- Future expected pension benefit accruals.
