A new analysis of state and local public pension plans indicates that these retirement plans will end fiscal year 2020 with negative annual investment returns, reduced asset values, lower funded ratios and higher actuarial costs. Additionally, the research indicates that plan finances will continue to decline in the wake of the economic downturn.
These findings are contained in a new research brief from SLGE and the Boston College Center for Retirement Research (CRR) – 2020 Update: Market Decline Worsens the Outlook for Public Plans.
The analysis indicates that on the whole, plans can endure and will maintain sufficient assets to pay benefits. However, some plans with extremely low funded ratios will face an increased risk of exhausting assets and high costs that are associated with pay-go funding.
This brief is part of ongoing research that tracks the fiscal health of public pensions across the US. This research and the accompanying appendices rely on the Public Plans Database (PPD) to report on the funded status of public pensions.
The research finds that:
- The ratio of assets to liabilities for public plans slipped from 71 percent in 2019 to 69.5 percent in 2020. As a result of this drop in the funded ratio, the average actuarially determined contribution is estimated to rise from 18.8 percent to 19.7 percent of payroll.
- With respect to plan finances projections from 2020-2025, the data show that the average funded ratio for public plans will steadily decline. But, even if markets do not fully recover until 2025, most plans will emerge with enough assets to pay benefits indefinitely.
- The lowest funded plans will remain solvent during the next five years, but a few are projected to exhaust their assets soon thereafter.
- Even the lowest funded plans can endure in the short term. But over the long term, all pension plans will be further behind.
The Center for State and Local Government Excellence gratefully acknowledges the financial support from ICMA-RC to undertake this research project and its support of the Public Plans Database.