An Update on Locally-Administered Pension Plans

Publication Date: July 2011

Publisher: Center for Retirement Research at Boston College

Author(s): Alicia H. Munnell; Jean-Pierre Aubry; Joshua Hurwitz; Laura Quinby

Research Area: Economics

Keywords: state and local pensions

Type: Report

Coverage: United States

Abstract:

The financial crisis and ensuing recession have had an enormous impact on state-administered pension plans. Funded levels declined sharply, the Annual Required Contribution (ARC) increased to make up for the fall in funding, and the percent of ARC paid declined as the bottom fell out of state revenues. In response, states have increased employer and em­ployee contributions, cut employment, slowed wage growth, and lowered benefits for new employees (and in a few instances reduced COLAs for current employees, but these initiatives have been challenged and are currently in the courts). Less is known about how locally-administered plans have fared in the last four years. This brief attempts to fill that gap.

The discussion proceeds as follows. The first sec­tion describes our sample of 97 locally-administered plans from 40 states, which was collected initially in 2006 and updated to 2010 for this brief. The second section presents the change in the funded status of local plans over the last four years, looking separately at plans for police/fire, teachers, and general em­ployees. It also reports the changes in the ARC and the percent of ARC paid during this period. And it compares the experience of locally-administered plans with those of state-administered plans. The third sec­tion reports on the impact of pension contributions to local budgets. This analysis is complicated by the fact that, in aggregate, only 40 percent of local pension contributions go to locally-administered plans, while 60 percent go to state plans. While good data are available for local-to-local contributions, local-to-state contributions are less explicit and in some cases must be estimated. Our calculations suggest that total local pension contributions for our sample account for about 8 percent of local budgets. The final section concludes that despite the perils facing cities such as Atlanta, Chicago, Philadelphia, and Omaha, locally-administered plans, overall, are as well-funded as those administered by the states. But the demands of local plans are only half the story in terms of pressure on local budgets; local contributions to state plans will be a major driver of future budget burdens.