The Funded Status of Local Pensions Inches Closer to States

The last comprehensive review of locally adminstered plans in this series found that their funded status – as of 2011 – lagged behind that of state pension plans. Yet much has happened in the public pension landscape since. Plans administered at both the state and local levels have passed a spate of reforms to control rising pension costs and to limit liability growth. This brief uses the most recent data available – from 2015 and 2016 – to assess the current status of local plans. The discussion proceeds as follows. The first section briefly describes the universe of local plans and the sample of plans used in this study. The second section compares trends in the funded status for state and local plans. While local plans have histo rically trailed states, their funding gap is slowly closing. To better understand this pattern, the third and fourth sections examine two key determinants of the funded status: required contributions and investment returns. The final section concludes t hat although local plans have paid more of their actuarially required contributions than state plans, relatively poor returns limited their ability to close the gap in the past. More recently, however, local plans have experienced higher actual returns relative to state plans, in part, due to a smaller allocation to alternative investments. As a result, the gap in funded status between the two groups is shrinking.