Industry News

On January 18, 2022, the Center for Retirement Research at Boston College (CRR) published its brief, Has COVID Affected Pensions for Workers without Social Security? CRR studied the effects of the COVID-19 pandemic on employer-sponsored retirement plans. Of particular interest were state and local pension plans with workers not covered by Social Security (i.e., noncovered plans). The findings indicate that the impact of the COVID-19 pandemic on noncovered public plans has been minimal.

The financial health of public plans depends on investment returns on pension fund assets and contributions from government plan sponsors. In 2021, CRR cites that both noncovered and covered plans exceeded their investment return targets by over 20 percentage points on average. In addition, state and local government plan sponsors have continued to contribute an increasing share of the Actuarially Required Contribution (ARC) even during the pandemic since tax revenues were not substantially impacted.

Other key findings include:

• In 2021, state and local income tax revenues were aided by stimulus checks, unemployment benefits, and Payroll Protection Program funds disbursed by the federal government during the pandemic;
• In addition to strong tax revenues, state and local governments received federal stimulus aid (though prohibited its use for bolstering pensions); and
• Due to strong investment returns and substantial pension contributions, the average funded ratios actually improved.

The brief concludes, “[T]he imme­diate impact of COVID on public plans – both covered and noncovered – has been minimal. And, looking forward, structural headwinds such as negative cash flows and lower-than-expected investment returns pose little risk to the ability of noncovered plans to pay future promised benefits.”

The brief is available here.