Funding for local, state, and federal public pension plans are in a downward trend, creating billions of dollars in outstanding liabilities. Pensions & Investments recently released reported on the top 100 public pension plans, in which the findings are alarming. Even as contributions increase, the funding gap is also seeing year-over-year increases. As the executive vice president and the director of capital markets research at Callan Associates Inc., Jay V. Kloepfer said, “It’s not enough contributions. That’s it. There are no other factors.”
The top 100 public pension funds in 2016 were 74.99% funded. This figure compares to 86.8% in 2007. In under 10 years, the ratio has dropped 10%. This leads to the question of whether this drop means that employees and employers are putting in less money each year. Pensions & Investments actually found the opposite to be true – employees and employers are contributing more money than previous years, despite the growing unfunded liabilities.
Employers are contributing 15.8% more in 2016 than in 2015 and employees are contributing an average of 22% more than the previous year. Despite the increased contributions from both levels of the workforce, the unfunded liabilities jumped from $723.6 billion in 2015 to $942.9 billion in 2016. Leaders at all levels show no signs of correcting this shortcoming, so this number will likely increase at the end of this year.
Local officials at all levels must stand up to outstanding pension plan liabilities and strive to ensure public pensions are fully funded. Kloepfer accurately pointed out the politics at play. “It’s a long-term liability and elected officials get elected every two to four years, and it’s easy to say, ‘we’ll deal with it later,” he said. Later has come and gone. It is time elected officials take action and fund pension plans at an adequate rate.