Public Pensions

State and Local Government Contributions to Underfunded Plans Gao ID: HEHS-96-56 March 14, 1996

State and local governments with underfunded pension plans risk tough budget choices in the future if they do not make progress toward full funding. Their taxpayers will face a liability for benefits earned by current and former government workers, forcing these governments to choose between reducing future pension benefits or raising taxes. Funding of state and local pension plans has improved significantly since the 1970s. After adjusting for inflation, the amount of the unfunded liability has been cut in half. Still, in 1992, 75 percent of state and local government pension plans in the Public Pension Coordinating Council survey were underfunded; 38 percent were less than 80 percent funded. Sponsors of slightly more than half of the plans in the survey made contributions on schedule to pay off any unfunded liability. One-third of the pension plans, however, were underfunded in 1992 and were not receiving the actuarially required sponsor contributions. Of all plans with complete data, one-fifth were underfunded and were not receiving full contributions in both 1990 and 1992.

GAO found that: (1) states and localities with underfunded pension plans run the risk of reducing future pension benefits to taxpayers or raising revenues; (2) unfunded liabilities for all state and local pension plans totalled $200 billion in 1992; (3) contributions to pension funds in 1992 fell short of the actuarially required amounts by 60 percent; (4) 75 percent of state and local pension plans involved in a Public Pension Coordinating Council (PPCC) survey were underfunded; (5) more than half of the pension plan sponsors surveyed continued to make payments to pay off their unfunded liabilities; (6) between 1990 and 1992, 20 percent of the plans were both underfunded and not receiving required sponsor contributions; and (7) of 117 plans with complete data in 1990 and 1992, 90 were underfunded.

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