Update on the Funded Status of State and Local Pension Plans – FY 2018

[Jean-Pierre Aubry]

The update’s key findings are:

• The funded ratio of state and local pensions edged up to 73 percent in FY 2018, but has been largely flat for several years and is well below its peak in 2001.
• Liability growth has steadily declined during the past two decades – from 7.7 percent in 2002 to 3.8 percent in 2018 – but asset growth has been even slower.
• Given these trends, if plan sponsors want to improve plan funded ratios, a key challenge is to increase their asset base through contributions.
• One way forward is to adopt more stringent funding methods such as level-dollar amortization and shorter amortization periods.
• Another, more important, change is to lower assumed investment returns, which would help ensure funding progress by further raising required contributions.