Comments on Funding of State and Local Government Pension Plans: A National Problem

Comments were provided on a study concerning the funding of State and local government pension plans. The criteria used in the study for analyzing the selected State and local plans was the Employee Retirement Income Security Act (ERISA) standard for funding private plans. While reviewing the plans, GAO found that State and local officials are generally aware of the need for sound actuarial funding of pension systems, but they view with apprehension the financial impact of imposing ERISA-type funding standards on public pensions. Such a funding standard for public pensions would require an annual contribution to cover the normal costs plus the amount needed to amortize the existing unfunded liabilities over a specified future period. Of the 72 State and local pension plans reviewed, GAO found that 19 met ERISA minimum standards for private pension plans. The other 53 plans were not receiving large enough contributions to satisfy the ERISA funding standard. If the 53 pension plans adopted an ERISA-type funding standard, GAO found that it would require an additional $1.4 billion annually. Thus many of the plans would have to raise their contributions by more than 100 percent, a few by more than 400 percent. However, the local retirement systems which are not actuarially funded are a threat to cities with severe future financial difficulties. Furthermore, GAO concluded that pension reform at the State and local levels is moving slowly, and the prospects for significant improvement in the foreseeable future are not bright.