The Funding of State and Local Pensions: 2009-2013
The financial crisis reduced the value of equities in state and local defined benefit pensions and hurt the funding status of these plans. The current and future funding status of state and local pensions is crucial, as state and local governments are facing a perfect storm: the decline in funding has occurred just as the recession has cut into state and local tax revenues and increased the demand for government services.
This brief reports state and local pension funding levels for fiscal year 2009. It also reports projections for 2010-2013 under alternative assumptions about the performance of the stock market. Key findings include:
- State and local plans, which were headed toward full funding, were knocked off track by the financial crisis.
- Their funding ratio dropped to an estimated 78 percent in 2009 from 84 percent in 2008.
- Funding will likely continue to decline to 72 percent by 2013.
- Reversing this decline will be difficult, as plans face constraints in increasing revenues from either employee contributions or taxes.
- Most pensions will not return to 80 percent funding levels by 2013 unless contribution levels increase.