Pension benefits for employees of state and local government are paid from trusts to which public employees and their employers contribute while they are working. Timely contributions are vital to the funding and sustainability of these plans, and over time yield investment earnings that account for the largest share of pension revenues. Failing to pay required contributions results in higher future costs, due to the foregone investment earnings that the contributions would have generated.
Nationally, contributions made by state and local governments to pension trust funds in recent years account for around four percent of all spending. Pension spending levels, however, vary widely among states and are actuarially sufficient for some pension plans and insufficient for others. Unlike employees, who must always contribute the amount prescribed in statute or by plan rules, some public employers—states, cities, etc.—have discretion to set the contributions they make to public pension plans. The result of this disparity in contribution governance arrangements is a wide range of experience among public employers concerning required contributions. Overall, however, the experience for FY 14 reflects an improved effort among state and local governments to make the full actuarially determined pension contribution, as well as a decline in the rate of growth of pension costs.
This brief describes how contributions are determined; the recent public employer contribution experience; and trends in employer contributions over time.