Industry News

On June 8, 2021, the Center for Retirement Research at Boston College (CRR) released its report, 2021 Update: Public Plan Funding Improves as Workforce Declines. According to the report, at the end of FY 2020, most pension experts tempered their public pension financial projections for the near-term prospects based on the ominous forecasts made by public finance experts early in the pandemic. However, strong investment performance following the low market in March 2020 resulted in pension returns that exceeded expectations.

Regardless of the COVID pandemic, the aggregate funded ratio of public pension plans is estimated to have risen from 72.8% in 2020 to 74.7% in 2021. In addition, state and local employment reductions due to the pandemic have had a slight impact on funded ratios and required contribution amounts, with the average actuarially determined contribution projected to have only increased from 21.3% to 22.0% of payroll.

The report concludes, “the required contribution rate increased more noticeably due to the lower payroll base over which the slightly higher re­quired contributions are now expressed. Interestingly, some plan sponsors have shifted to charging amorti­zation payments as a fixed-dollar amount rather than a percentage of salary. Doing so would remove the potential for unintended underfunding going forward and, if amortization payments are reported as a dollar amount, reduce the appearance of rising contribution rates whenever there is a decline in employment.”

The brief is available here.