On January 2, 2018, the Center for Retirement Research (CRR) at Boston College released its brief, The Funded Status of Local Pensions Inches Closer to States. According to the brief, as of 2015, local pension plans have an aggregate funded ratio of 69.9%, compared with 73.9% for state plans. In addition, in 2015, local plans contributed 83% of their required contributions, compared with 76% for state plans. CRR findings indicate that the variances between state and local plans are possibly linked to differences in aggregate investment approaches and funding methods, respectively.
Key findings include:
- Since 2001, the aggregate funded status of local pension plans has fallen behind that of state pension plans.
- However, in recent years, the funding gap has been closing due to: 1) local plans continuing to receive more of their required contributions than state plans and likely using more stringent funding methods; and 2) local plans earning stronger investment returns than state plans, likely as a result of lower allocations to alternative investments.
- Although many local and state plans have made progress, both continue to face significant funding challenges.
The brief concludes, “in recent years, local plans have experienced stronger returns than state plans, shrinking the funding gap between the two.” Adding, “it is important that state and local plans evaluate their funding policies and consider incorporating more aggressive funding methods that pay down unfunded liabilities faster. This shift would expedite funding progress when returns are strong and could serve as a safeguard in the event of poor returns.”
The brief is available here.