Industry News

In June 2019, the National Association of State Retirement Administrators (NASRA) updated its issue brief, State and Local Government Contributions to Statewide Pension Plans: FY 17. The brief examines: 1) how contributions are determined; 2) recent public employer contribution experience; and 3) trends in employer contributions over time.

According to NASRA, “Overall, the experience for FY 17 reflects a continuation of an improved effort among state and local governments to make actuarially determined pension contributions: on a dollar-weighted basis, the percentage of required contributions that was paid by public employers increased for the fifth consecutive year, while pension costs continued to grow at a slower pace than previous years.”

NASRA’s findings indicate that the median actuarially determined contribution (ADC) received in FY 17 was 100%, ranging from 38.4% to 174.0%. On a dollar-weighted basis, the average ADC received was 94.0%, up from 92.0% in FY 16. The aggregate rate of increase in required contributions from FY 16 to FY 17 was 4.3%. This is the second lowest rate of increase during the measurement period, which marks the fourth consecutive year of growth in required contributions below 5.0%.

On average, employer contributions to public pension plans continue to be a small percentage of state and local government spending. In recent years, employer contributions have been growing. Among the statewide pension plans included in the study, the ADCs increased from $27.8 billion in FY 01 to $109.4 billion in FY 17, up 186% in inflation-adjusted dollars. The actual employer contributions paid rose from $28.0 billion in FY 01 to $96.9 billion in FY 17, up 153% in inflation-adjusted dollars.

Depending on the plan, the growth of required employer contributions is due to one or more factors, including: 1) investment market losses; 2) insufficient contributions; 3) more conservative actuarial methods and assumptions (i.e., lower investment return assumptions and more aggressive amortization periods); and 4) demographic and investment experience that differs from assumptions.

The brief is available here.