The Funding of State and Local Pensions: 2014-2018
This brief tracks the changes in the funded status of state and local government pension plans between 2013 and 2014. It also discusses possible reasons for the changes observed and offers projected funded ratios for sample plans for 2014 through 2018. Key findings include:
- Most plans have improved their funded status in 2014, with the ratio of assets to liabilities increasing from 72 percent in 2013 to 74 percent in 2014;
- According to the analysis, there are two reasons for these improvements: positive stock market performance during the previous five years, allowing the 2009 negative equity returns to be replaced in plans that smooth their market gains and losses over five years; and higher payments of the annual required contribution by state and local governments increasing to 88 percent in 2014 as compared to 82 percent in 2013;
- Going forward, assuming plans achieve their expected rate of return, the plans should be 81 percent funded in 2018; and
- If returns are lower, as predicted by many investment firms, funding will stabilize at about 77 percent.