State and Local Government Pensions
Public Pension Plans Are Not In a Current Crisis
- Most state and local employee retirement systems have substantial assets to weather the economic crisis. There is currently $2.7 trillion already set aside in pension trusts for current and future retirees.
- Public pensions are funded and paid out over decades; state / local government retirees do not draw down their pensions all at once.
- State and local employee retirement systems do not seek federal financial assistance. One-size-fits-all federal regulation is neither needed nor warranted and would only inhibit recovery efforts at the state and local levels.
Public Pension Liabilities, Debt Loads, and Retiree Health Benefits Are Issues With a Long-Term Time Horizon
- More state and local governments enacted significant modifications to improve the long-term sustainability of their retirement plans in 2010 than in any other year in recent history.
- In the past few years, nearly two-thirds of states have made changes to benefit levels, contribution rate structures, or both; many local governments have made similar fixes to their plans.
- While pension obligations are legally binding, often backed by explicit state constitutional or statutory guarantees, states are generally free to change any provision of their retiree health plans, including terminating them, because they do not carry the same legal protections. Therefore, it is misleading to combine unfunded pension liabilities with the unfunded retiree health benefits as an argument for impending pension meltdown.
Long-Term Investment Returns of Public Funds Continue to Exceed Expectations
- Over the last 25 years that saw three economic recessions and four years of negative median public fund investment returns actual public pension investment returns averaged 9.25 percent, which exceeded projections.
- These actual returns exceed the 8% average public pension investment assumption, as well as the average assumed rate of return used by the largest corporate pension plans.
Retirement Systems Remain a Small Portion of State and Local Government Budgets
- The portion of state and local government spending dedicated to retirement system contributions is about three percent.4 Pensions are a trust that public retirees and their employers contributed to while they were working.
- While there are pension trusts that are fully funded with enough assets for current pension obligations, there are legitimate issues with underfunding because of the Great Recession and stock market declines. Some experts argue that a modest increase in contributions to take advantage of compounded interest, modifications to employee eligibility and benefits, or both, may be sufficient to remedy the underfunding in most states.
- The unprecedented number of benefit and financing changes in public plans over the last few years will help to minimize any required increases. The vast majority of public employees are required to contribute a portion of their wages-typically, five to ten percent-to their state or local pension, and these contribution rates are being raised in many state and local governments.
Pension Dollars Help the Economy of Every Jurisdiction
- Public employees live in every city and county in the nation. More than 90 percent retire in the same jurisdiction where they worked. The over $175 billion in annual benefit distributions from pension trusts are a critical source of economic stimulus to communities throughout the nation, and act as an economic stabilizer in difficult financial times. Recent studies have documented public retirement system pension distributions annually generate over $29 billion in federal tax revenue, more than $21 billion in annual state and local government tax revenue, and a total economic impact of more than $358 billion.
Learn more about NLC's work on City Finance.
"Facts you Should Know". Joint fact sheet by NLC, NGA, NCSL, CSG, NACo, USCM, ICMA, NASBO, NASACT, GFOA, and NASRA. February 2011.
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