Industry News

On February 15, 2023, 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 5.2% 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) 2020.

Furthermore, state and local government direct general spending on public pensions has remained relatively stable over the past 30 years, declining from 3.4% in FY 1992 to about 2.3% in FY 2002. It increased to 5.0% in FY 2017 where it remained until rising to 5.2% in FY 2020. In aggregate, state and local governments contributed $186 billion to pension funds in FY 2021, which represents an increase of 3.5% from FY 2020. This change is projected to be about 5.1% of projected state and local government direct general spending.

The brief also finds that across state and local governments in 2020, 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 1992, investment earnings amounted to about 64% of all public pension plan revenues, with an additional 25% from employer contributions, and 11% from employee contributions.

The brief also includes a table showing state and local government pension contributions in 2020 as a percentage of state and local government direct general spending on a state-by-state basis.

The brief is available here.