Industry News

On February 13, 2024, 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. Based on U.S. Census Bureau data, about 5.1% 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) 2021.  

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 1993 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 and declining to 5.1% in FY 2021. 

In aggregate, state and local governments contributed $221 billion to pension funds in FY 2022, which represents an increase of nearly 20% from FY 2021. This change is projected to be about 5.8% of projected state and local government direct general spending. According to the brief, “While some of this increase may be attributable to improved pension funding discipline among state and local governments, much of the sharp increase in the percentage of spending projected for FY 2022 is driven by extraordinary contributions above actuarial requirements.”

The brief also finds that across state and local governments in 2022, 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. 

In FY 2022, state and local government employer contributions to statewide retirement systems were 77% of total pension contributions and 23% were for locally administered systems. 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 1993, investment earnings amounted to about 63% of all public pension plan revenues, with an additional 26% from employer contributions, and 11% from employee contributions.   

The brief also includes a table showing state and local government pension contributions in 2021 as a percentage of state and local government direct general spending on a state-by-state basis. 

​The brief is available here.