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On April 27, 2022, the National Association of State Retirement Administrators (NASRA) released its issue brief, Overview of Public Pension Amortization Policies. The brief cites that a pension plan funding policy describes how pension benefits are financed. Generally, the core elements of a funding policy include: 1) the actuarial cost method; 2) the asset smoothing method; and 3) the amortization policy.

According to the brief, “An amortization policy is defined as the rules and processes that determine the length of time and the structure of payments required to systematically eliminate a funding shortfall, known as the unfunded actuarial accrued liability (UAAL). The UAAL, or unfunded liability, is the difference between a plan’s actuarial value of assets and its liabilities, which are the accumulated value of benefits earned by plan participants.” It adds, “Nearly every public pension plan has an unfunded liability; some plans have an actuarial surplus, which also is referred to as a negative unfunded liability. As financial obligations, public pension unfunded liabilities sometimes are likened to debt. As with other government obligations, unfunded liabilities typically are amortized, or paid, in a systematic manner over a period of time.”

For purposes of comparing amortization policies, the brief includes: 1) the basis of employer contributions: variable or fixed; 2) plan type: variable employer contributions with fixed amortization periods; and 3) plans funded by fixed employer contributions.

NASRA compiled the data based on the amortization policies of 104 statewide and 20 locally administered public pension plans as of the latest Fiscal Year (FY) (generally FY 2020). The selected sample plans represent about $4.0 trillion in assets and $1.5 trillion in unfunded liabilities to be amortized.  

The brief is available here and the dataset is available here.