The Impact of Public Pensions on State and Local Budgets

Source: Alicia H. Munnell, Jean-Pierre Aubry, and Laura Quinby, Center for Retirement Research at Boston College, SLP#13, October 2010

From the abstract:
State and local pensions have been headline news since the financial collapse reduced the value of their assets, leaving a substantial unfunded liability. The magnitude of that liability depends on the interest rate used to discount future benefit promises but, regardless of the assumptions, states and localities are going to have to come up with more money. This brief looks at the size of the additional funding relative to state budgets.

The brief proceeds as follows. The first section provides an overview of state and local plans and in- troduces our sample of six states: California, Florida, Georgia, Illinois, Massachusetts, and New Jersey. The second section presents data on pension expenditures relative to budget totals for states and localities in the aggregate and for our sample of plans. The third section develops baseline budgets for the period 2010-2043 for all states and localities and for the six individual states. It then projects annual required pension contributions beginning in 2014 under three scenarios: 1) amortizing the unfunded liability valued at an 8-percent discount rate over the next 30 years; 2) amortizing the unfunded liability valued at 5 percent over the next 30 years; and 3) continuing to pay contributions at current levels until the trust fund is exhausted and then paying benefits on a pay-as-you go basis.

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