How did the nation’s state and local government pension systems fare last fiscal year? In its 2012 Survey of Public Pensions: State & Local Data, the U.S. Census Bureau provides a detailed analysis of the 227 state-administered pension plans and 3,771 locally administered defined benefit plans in the country.
The report is a valuable reference tool for those interested in state and local pension plan finances, with downloadable data on state and local pension system revenues, expenditures, cash and investments, and membership for the fiscal year ended June 30, 2012.
When actuarial liability assumptions are taken into account, the reliance on contributions and earnings for incoming funds becomes potentially problematic for a number of state and local governments.
“The aggregate numbers on a current basis for both states and all local governments don’t paint quite as bleak a picture – at least not on the surface,” according to Richard Ciccarone, President and Chief Executive Officer of Merritt Research Services, LLC. “While the most recent year Census numbers indicate that overall contributions and earnings received in FY 2012 comprised nearly 100% of all payments, these aggregate figures seriously understate the cumulative future liability that is embedded in the total picture.
When actuarial liability assumptions are taken into account, the reliance on contributions and earnings for incoming funds becomes potentially problematic for a number of state and local governments. These pension systems will have to support a fast-growing number of retirees who are only beginning to receive escalating levels of benefits, especially those tied to higher salaries and cost of living adjustments over long periods of retirement.”
For the year, contributions + investment on earnings to all state pension systems totaled $110.4 billion and $85.5 billion, respectively, while total payments (including benefits, withdrawals and other payments) were $201.4 billion (contributions & earnings to payments ratio: 97.3%). On the local government side, contributions equaled $34.2 billion and investment on earnings amounted to $10.5 billion, while total payments were $45.1 billion (99.1% ratio).
Ciccarone points out that not all cities are in a pension funding crisis. In a sample study he compiled using Merritt Research Services data from over 700 cities with their own pension plans, the median funding ratio was 76%. On the other hand, 15% of those cities had total funding ratios under 60%, leaving them the most vulnerable to critical budget squeezes, which could challenge their ability to cover future liabilities.
Another interesting data set released by the U.S. Census Bureau provides a breakdown of the investments that comprise total public pension assets. On a combined basis, state and local pension systems had a total of $3.1 trillion in cash and investments as of June 30, 2012.
How did pension systems invest their funds? The largest portion ($1.1 trillion) of their $2.5 trillion securities portfolio was invested in corporate stocks, followed by a $534.0 billion investment in foreign and international securities.
An analysis of the investment breakdown of how pension monies are allocated over time may provide some indication of the potential risk sensitivity to the various assets that these plans have to the market.
“Like their private sector counterparts, public pension funds have been investing more monies in somewhat riskier stocks and alternative investments and less in lower volatility bonds due to the generally low yield levels in fixed income,” Ciccarone said.
The Survey provides summary data on a national, state and local system level, as well as on a state-by-state basis. The 2013 Annual Survey of Public Pensions: State & Local Data is scheduled for release in October.