Report: Funding gap in local public pension plans

A new report contains good news and bad news for public employees in local pension plans. The good news is that locally-administered pension plans have a better track record of paying the annual required contribution, but the bad news is that those plans still lag the funding levels of state-administered plans, according to the report, “Locally-Administered Pension Plans, 2007-2011,” from the Center for State and Local Government Excellence (CSLGE).

The report said pension plans administered by local governments were 72 percent funded, compared to state-run plans funded at 76 percent. Experts recommend that pension systems should be at least 80 percent funded.

The CSLGE report’s authors said the gap between local and state-run plans is “puzzling because local plan sponsors generally pay a larger share of their annual required contribution than state plan sponsors.” The explanation, the report concluded, was straightforward. State plans take bigger risks, investing in more risky assets, and have generally earned higher returns.

The upside for local pension plans is that during the financial crisis, their less risky portfolios fared better, helping narrow the funding gap with state plans. Local plans have narrowed the funding gap to 4 percent in only the last four years.

Locally-administered plans are funded for general employees, teachers and first responders. Overall, according to the National Association of Counties, 42 percent of local pension plan contributions go to locally-administered plans, while 58 percent go to state-administered plans.