What a difference a year makes.
In May 2020, things look bad for states and local governments, and many analysts have worried about the state of public sector pension funding.
But 13 months later, The worst worry about the city budget remains unresolved, Washington is pushing billions of dollars in stimulus money downstream, and stock market returns have increased what even the most optimistic analysts expect.
Taken together, that means the funding status of public pension plans has improved, according to a report from one of the most closely watched groups that track pensions. The Boston College Retirement Research Center 2021 Update estimates the aggregate level of capital among public sector plans at 74.7%, up from 72.8% last year.
A retirement plan’s “funding status” refers to the amount of assets it has on hand, relative to current and future liabilities when the employee retires. Pensions in the public sector receive inputs from workers’ wages and from employer contributions.
But they also rely on returns on their investments. Add up over many years, those gains (or losses) account for about 2/3 of total pension profits lương. Over the past year, stocks have rallied: the S&P 500
up 79% from 2020. That’s a boon for many retirement plans. The New York State General Retirement Fund sees 33.5% profit for the financial year ended March 31, the largest in its history, while The Arkansas Teacher Retirement System grew 38.8%.
Even so, the total contribution that state and local governments must make has increased over the past year, to 22% of payroll, from 21.3%. The BC researchers noted that was largely due to a massive loss of workforce as a result of the crisis. Governments cut nearly 1.5 million jobs in the six months between March and August 2020, roughly the number of layoffs during the 2008-2009 recession.
Contribution rates had to be increased because the salary base had shrunk.
Continue reading: Local government employment in the US is at a 19-year low