State and Local Pension Plans Funding Sputters in FY 2016

Particularly since the 2007-2009 financial crisis, state and local pension plans have faced funding challenges. The findings of this brief reflect a funding environment that has stabilized, but one that will still require more adequate required contributions and better investment performance if it is to improve.

Using data from the 170 plans in the Public Plans Database (PPD), which account for the vast majority of the members and assets of state and local pension plans, this brief provides a multi-year comparison of plans’ funded ratios under both the old Government Accounting Standards Board standard (GASB 25) and the new standard (GASB 67). Key findings include:

• Overall, public pensions are in a better position than they were immediately following the recession;
• The ratio of assets to liabilities for the 170 plans in the PPD decreased from 73 percent in 2015 to 72 percent in 2016, as measured by GASB 25, and from 73 percent to 68 percent, as measured by GASB 67;
• PPD plans have been paying more of their required contributions (92 percent) relative to recent years;
• Payments as a percentage of payroll have increased to 18.6 percent;
• PPD plans have continued to adjust their annual investment return assumptions downward to an average of 7.6 percent in FY 2016; and
• In order to return the aggregate funded ratio to above 80 percent, plan sponsors will need to increase their contribution efforts and investment returns must consistently meet or exceed expectations over a sustained, longer term.