Funding of State and Local Government Pension Plans:

A National Problem

HRD-79-66: Published: Aug 30, 1979. Publicly Released: Aug 30, 1979.

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Congress is considering establishing federal standards for state and local government pension plans similar to those imposed on private plans by the Employee Retirement Income Security Act of 1974. The act generally provides that the minimum standard for pension funding by private employers be an annual contribution for normal costs plus the amount needed to amortize current unfunded liabilities in 40 equal annual installments. Public pensions are becoming a large financial burden on state and local governments, and that burden will increase in the future. Many jurisdictions do not systematically fund retirement benefits accruing to their employees.

Adopting a pension plan funding standard similar to that required by the act would have serious initial impact on some jurisdictions. During the years the plans are on a pay-as-you-go basis, their unfunded liabilities will continue to grow. At the end of the amortization period of 40 years required for private plans, their unfunded liabilities will more than triple and yearly pay-as-you-go contributions will increase several fold. To protect the pension benefits earned by public employees and to avert fiscal disaster, state and local governments need to fund the normal or current cost of their pension plans on an annual basis and amortize the plans' unfunded liabilities. Although sponsoring governments are responsible for sound funding of state and local government plans, the federal government has substantial interest in these pension plans. Many jurisdictions have increasingly relied on federal grant funds and revenue sharing to help meet pension plan costs. These plans directly affect the continued well-being and security of millions of state and local government employees and their dependents.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress has been monitoring state and local plans. Based on increased attention to plan funding by state and local governments, this recommendation is not valid as long as such attention continues.

    Matter: Congress should closely monitor actions taken by state and local governments to improve the funding of their pension plans to determine whether and at what point congressional action may be necessary in the national interest to prevent fiscal disaster and to protect the rights of employees and their dependents.

 

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