Pensions Receive Inadequate Employer Contributions
Study: Employers aren't contributing enough to public pensions
A new report from the Society of Actuaries highlights a major problem public pension systems are facing – most public pensions received inadequate employer contributions.
The report, released this month, examines data from 160 public pension plans in the United States. The report's authors, Lisa Schilling and Patrick Wiese, specifically looked at metrics that compare retirement plan contributions to benchmarks that represent the level needed to pay down unfunded liabilities.
The authors collected the data from 160 state and large city public sector pension plans in the United States between 2006 and 2014 using assets and liabilities reported under Government Accounting Standards Board guidelines.
In each year examined, most of the 160 plans received insufficient employer contributions to maintain their unfunded liabilities. In 2014 alone, according to the report, 72 percent of plans experienced negative amortization, which increased from 65 percent in 2006.
For 130 public pension plans, total unfunded liabilities increased 150 percent from $400 billion in 2006 to $1 trillion in 2014, and the plans studied were 73 percent funded by the end of 2014.
Between 2006 and 2014, employer contributions to those same 130 plans increased 76 percent, up to $85 billion in 2014 from $48 billion, and employee contributions increased 30 percent, to $37 billion from $28 billion. Both payroll and prices rose 17 percent.
According to the Society of Actuaries' report, many plans with negative amortization contributed at least as much as their target contribution. Among the systems analyzed by the group, regulations "for determining employer contributions vary significantly from state to state and may vary from plan to plan within a state," according to the group's report.
Not every plan was underfunded, however. Three percent of plans in 2014 had a funding surplus and “20 percent of plans received enough employer contributions to fund their shortfall within 30 years without it growing through negative amortization in the meantime,” according to the report.