U.S. Public Pension Plan Contribution Indices, 2006–2014

Source: Lisa Schilling, Society of Actuaries, June 2017

In March 2016, the Society of Actuaries (SOA) introduced contribution indices, metrics that compare pension plan contributions to benchmarks that represent the contribution level needed to pay down unfunded liabilities or to satisfy a specific requirement. This study explores various contribution indices for employer contributions among 160 state and large city public sector pension plans in the United States over 2006-2014 using the assets and liabilities reported under Government Accounting Standards Board (GASB) guidelines. The analysis isolates employer contributions because state law typically defines employee contribution rates, whereas employer contributions are typically more flexible.

Key observations include:
– For 130 plans with consistently viable data for this study over 2006–2014, total unfunded liabilities as reported under GASB guidelines increased about 150% from about $400 billion in 2006 to approximately $1 trillion in 2014, while liabilities increased 47%, from about $2.5 trillion to roughly $3.7 trillion.
– In every year studied, most of the 160 plans with enough data to complete analysis for the year received insufficient employer contributions to maintain their unfunded liabilities— they experienced negative amortization. In 2014, 72% of plans experienced negative amortization, up from 65% in 2006.
– Many plans with negative amortization contributed at least as much as their target contribution. However, at the peak in 2010, 76% of target contributions entailed negative amortization. By 2014, the percentage fell to 67%, roughly the same level as 2006.
– For 2014, 3% of plans showed a funding surplus and 20% of plans received enough employer contributions to fund their shortfall within 30 years without it growing through negative amortization in the meantime.
– Employer contributions for the same 130 plans increased 76%, from about $48 billion in 2006 to roughly $85 billion in 2014. Employee contributions increased 30% during this period, from $28 billion to $37 billion, while payroll and prices both increased 17%…..