The brief’s key findings are:
- Since 2019, financial markets have seen unusual turmoil, most recently a sharp rise in interest rates to curb high inflation.
- Despite volatile asset values, the funded status of state and local pension plans has risen about 2 percentage points since 2023, and 5 points since 2019.
- That is, the strong performance of other asset classes has more than offset the impact of rising interest rates on fixed-income assets.
The brief’s key findings are:
- FY 2022 has been hard for state and local pension plans, with large investment losses and rising outlays due to inflation.
- The aggregate funded ratio fell from 78 percent to 74 percent, negating much of the gains from the previous year.
- The impact of rising inflation on pension finances, though, has been muted by limits to plans’ cost-of-living-adjustments (COLAs).
- However, the flip side of limited COLAs is less inflation protection for retirees, especially those not covered by Social Security.
The brief’s key findings are:
- The inclusion of “legacy debt” – unfunded liabilities from long ago – with current liabilities impedes effective pension policy.
- A new approach would separate legacy debt from other unfunded liabilities in order to:
- spread the legacy cost over multiple generations; and
- properly identify fixed vs. variable costs.
- It would also use the municipal bond yield – rather than the assumed return on assets – to calculate liabilities and required contributions.
- This approach, by properly allocating costs, would improve intergenerational fairness, government resource decisions, and public credibility.
The brief’s key findings are:
- About 5 million state and local workers are not covered by Social Security on their current job.
- The law requires that their pension plans provide a benefit equal to what they would have received upon retirement if they were covered by Social Security.
- While all plans meet the letter of the law, a prior study found that 43 percent of them do not provide lifetime benefits equal to Social Security for some workers.
- The workers who lose out are those who leave in mid-career, as their pensions are based on wages when they depart, whose real value erodes over time.
- This new study finds that this group accounts for about 17 percent of current noncovered workers, so hundreds of thousands could fall short.
The brief’s key findings are:
- At the outset of the pandemic recession, many feared it would undermine workers’ employer-sponsored retirement plans.
- State and local employees who are not covered by Social Security would have been particularly vulnerable, as they lack the buffer this program offers.
- Their employer defined benefit plans would have been hurt by a long recession with poor investment returns and reduced contributions due to tax shortfalls.
- Instead, these plans exceeded their return targets; tax revenues held up; and government sponsors got stimulus aid, so plan funded ratios actually improved.
- And long-term structural headwinds such as negative cash flows and aggressive return targets still pose little risk to their ability to pay future benefits.
The brief’s key findings are:
- Whether public teachers are over- or under-paid is a source of lively debate.
- This study sheds new light on the topic by using more accurate estimates of benefit costs.
- The results show that teachers earn roughly the same as similar private sector workers.
- However, given cuts to pension benefits for teachers hired in the past decade, relative compensation is likely to decline over time.
- And uncompetitive compensation may make it harder to recruit high-quality teachers, potentially leading to worse outcomes for students.
The brief’s key findings are:
- The conventional wisdom is that all state and local government workers receive a lifetime annuity in retirement from their employer pension plan.
- The analysis confirms this presumption for most workers, but also finds that a small share will receive some income that is not annuitized.
- About 6 percent of all state and local workers convert part of their defined benefit annuity into a lump-sum payment.
- And another 8 percent will potentially enter retirement with un-annuitized assets from a defined contribution plan.
The brief’s key findings are:
- The aggregate funded ratio improved from 73 to 75 percent from FY 2020 to 2021. At the same time, contribution rates rose from 21 to 22 percent of payrolls.
- While initial expectations for public pensions were low due to COVID, financial markets rebounded and municipal tax revenues were quite resilient.
- Yet one other COVID-related factor – cuts to the state and local workforce – impacted public pension finances in FY 2021.
- These cuts had little impact on funded status and required contribution amounts, but they do explain the rise in contribution rates, which are expressed as a share of lower payrolls.
The brief’s key findings are:
- About one quarter of state and local workers are not currently covered by Social Security.
- Federal standards require that state and local plans provide their noncovered workers benefits equivalent to Social Security at the full retirement age.
- This study explores whether the plans satisfy the federal standards, and whether the standards themselves ensure equivalent benefits.
- The results show that public plans do adhere to the standards, and the standards satisfy the letter of the law.
- But looking beyond the standards to see if plans also provide equal lifetime benefits suggests that a significant portion fall short for some of their members.
- Policy options include updating the standards to a lifetime measure or, more importantly, requiring all public workers to be covered by Social Security.