Industry News

On April 11, 2023, the Center for Retirement Research at Boston College (CRR) released its issue brief, The Sustainability of State & Local Pensions: A Public Finance Approach. The brief examined the fiscal outlook for state and local government pension plans under current benefit and funding policies. The CRR analysis presents an alternative to full prefunding of state and local pensions. The alternative approach discusses stabilizing pension debt as a share of the economy, or Gross Domestic Product (GDP).

The brief states, “To assess the feasibility of this approach requires: 1) projecting the annual cash flows for a nationally-representative sample of 40 state and local pension systems to see the future evolution of each plan under current contribution levels; and 2) estimating the contribution increases needed to stabilize the ratio of pension debt to the economy.”

According to the brief’s findings:

• “Under current contribution rates, baseline projections show no sign of a major crisis in the next two decades even if asset returns are low.
• Yet, many plans will be at risk over the long term of exhausting their assets, so action will be needed.
• Plans can reach a sustainable footing by stabilizing their debt-to-GDP ratio, with much smaller contribution hikes than under full funding.”

The brief is available here.