Public Pensions

NEW Research Explores State and Local Government Spending on Retirement Systems

Nationwide contributions account for 4.7% of ‘direct general spending’

Excerpts from a new issue-brief by the National Association of State Retirement Administrators. Reprinted with permission. Read the full report here.

A new issue brief from the National Association of State Retirement Administrators (NASRA) finds that on a nationwide basis, contributions made by state and local governments to pension trust funds accounted for 4.7 percent of direct general spending.

The research reports that although pensions in most states do not comprise a significant portion of aggregate state and local spending, spending on pensions by states varies widely – from less than two percent to nearly ten percent. And, some municipalities have reported higher pension costs as a percentage of their budget.

According to NASRA, the variation in pension spending levels among states is attributable to such factors as differences in benefit levels; variations in the size of unfunded pension liabilities; the level of commitment by the state and its local government plan sponsors to make required pension contributions; the portion of the state’s population that lives in an urban area; and the fiscal condition of government plan sponsors.

Excerpts from the Study

Nationwide Spending on Public Pensions
Based on the most recent information provided by the U.S. Census Bureau, 4.7 percent of all state and local government spending is used to fund pension benefits for employees of state and local government. Pension costs rose sharply following FY 02 after falling equally sharply in the preceding years. These costs declined from 4.1 percent, in FY 89, to a low point of 2.3 percent in FY 02, and reached 4.7 percent in FY 17.

The rate of spending in FY 17 was essentially unchanged from the prior year, dropping from 4.72 percent to 4.71 percent. Although slight, this decline marked the first decrease in the rate of pension spending since 2009. This reduction is notable especially in light of the improved effort among state and local governments in recent years to adequately fund their pension plans.

State and local governments contributed, in aggregate, approximately $160 billion to pension funds in FY 18, an amount that represents the largest annual increase in employer pension contributions since FY 14. This change is projected to increase the percentage of state and local direct general spending on public pensions, from 4.71 percent to 5.02 percent.

Although pensions in most states do not comprise a significant portion of aggregate state and local spending, spending on pensions by states and political subdivisions varies widely among states, from less than 2.0 percent to nearly 10.0 percent. Some municipalities have reported higher pension costs as a percentage of their budget.

Differences in Pension Cost Levels
The variation in pension spending levels among states is attributable to such factors as differences in benefit levels; variations in the size of unfunded pension liabilities; the level of commitment by the state and its local government plan sponsors to make required pension contributions; the portion of the state’s population that lives in an urban area; and the fiscal condition of government plan sponsors. Most employees of state and local government participate in statewide retirement systems.

although pensions in most states do not comprise a significant portion of aggregate state and local spending, spending on pensions by states varies widely - from less than two percent to nearly ten percent...

In FY 18, state and local government contributions to statewide retirement systems accounted for 77 percent of total pension contributions, with the remaining 23 percent belonging to locally administered systems. As a percentage of total spending, cities spent approximately 31 percent more than states on pensions over the 30-year period spanning 1988- 2017. This higher level of spending is largely attributable to the types of services delivered at the local level (i.e., more labor-intensive, such as public safety personnel) and the resulting larger portion of local government spending that goes toward salaries and related benefits compared to spending by states.

Read the full issue-brief here