The Miracle of Funding by State and Local Pension Plans

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The question of funding for state and local government retirement plans has gained increased urgency as baby boomers are about to begin retiring in large numbers. Most experts see future taxpayers bearing the primary burden resulting from current funding shortfalls. This brief examines three aspects of the funding of state and local pension plans: the regulatory environment under which they operate, their costs and funding requirements, and their current funding status. Key findings include:

  • State and local pension plans, overall, are as well funded as private plans, with assets covering nearly 90 percent of liabilities.
  • This outcome is striking, even “miraculous,” given that public plans tend to pay larger benefits, use a more stringent funding yardstick, and are not covered by any national legislation that mandates funding standards.
  • Assets per worker increased markedly in the1990s after states and localities responded to new standards issued by the Government Accounting Standards Board.
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