Industry News

On February 23, 2022, the National Association of State Retirement Administrators (NASRA) updated its standing issue brief, State and Local Government Spending on Public Employee Retirement Systems. The brief examines the cost of pension benefits for state and local governments and finds that, based on U.S. Census Bureau data, about 5.0% of all state and local government direct general spending (which includes all government expenditures except intergovernmental transfers) was used to fund pension benefits in Fiscal Year (FY) 2019.  

Furthermore, state and local government direct general spending on public pensions has remained relatively stable over the past 30 years, declining from 3.7% in FY 1991 to about 2.3% in FY 2002 and rising to 5.2% in FY 2018 before decreasing to 5.0% in FY 19. In aggregate, state and local governments contributed $180 billion to pension funds in FY 2020, which represents an increase of 7.4% from FY 2019. This change is projected to be about 5.2% of projected state and local government direct general spending.

The brief also finds that across state and local governments in 2019, spending on pensions varied from less than 2.0% of total spending to nearly 10.0%. This variation was mainly due to: 1) differences in benefit levels; 2) differences in the magnitude of unfunded pension liabilities; 3) level of commitment by plan sponsors to make required pension contributions; 4) portion of the state’s population that lives in an urban area; and 5) fiscal condition of government plan sponsors. As a percentage of total spending, pension costs were about 31% higher for cities than for state governments over the period from 1988-2017. This is primarily attributable to the types of services delivered at the local level which results in a larger portion of local government spending on salaries and related benefits compared to state government spending. 

In addition, the brief clarifies that public pensions are financed from the combination of employee contributions, employer contributions and investment returns. Since 1991, investment earnings amounted to about 60% of all public pension plan revenues, with an additional 28% from employer contributions, and 12% from employee contributions.  

The brief also includes a table showing state and local government pension contributions in 2019 as a percentage of state and local government direct general spending on a state-by-state basis.

The brief is available here.