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The vast majority of large public pension plans are losing the battle to keep pace on funding, showing deficiencies despite a substantial uptick in contributions.
Even when plans “and their sponsoring governments are pretending to be good, they can be bad,” Donald J. Boyd, director of fiscal studies at the Rockefeller Institute of Government in Albany, N.Y., told Bloomberg BNA June 22.
A state could make its actuarially determined contribution but still not be paying enough to prevent its pension funding shortfall from growing, Boyd said. This points to the inadequacy of plans’ funding policies, he said.
Lisa Schilling, a retirement research actuary for the Society of Actuaries in suburban Chicago, agrees. A “big percentage of plans are losing ground in their funding status, and a whole lot of those plans are actually making their target contributions,” she told Bloomberg BNA June 21.
Schilling co-wrote a study released June 21 that shows an increase in state plan funding deficiencies. Unfunded liabilities for 130 large public plans increased about 150 percent from about $400 billion in 2006 to nearly $1 trillion in 2014, the study found. This occurred despite a 76 percent increase in employer contributions from about $48 billion in 2006 to roughly $85 billion in 2014, the study said.
The overall plan funding level stood at 73 percent at the end of 2014, down from 77 percent on Dec. 31, 2009, the study said.
Only about 20 percent of these plans are making contributions sufficient to prevent further funding level declines, the study said.
The public plan sector has challenges that the private sector doesn’t, Schilling said. In many states, she said, there’s a lag of several years from the time a plan’s funded status is measured and the time the state allocates contributions. The plan’s funding situation may have changed by that time, she said.
State plans are also dealing with difficult economic circumstances. Their asset levels are still depressed from severe losses sustained during the market crash in 2008-09, and they rely on funding from state treasuries facing reduced inflow of income and state tax revenue.
To escape from this hole, “states need to develop rigorous, responsible funding policies, and stick to them,” Boyd said.
This often means that the states must pay even more money to the plans. There’s a huge political cost for doing so, Boyd said, since this leaves less money for other services or requires higher taxes.
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The Society of Actuaries study is at http://src.bna.com/p5m.
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