Public Pension Funding in Practice

Alicia Munnell, Jean-Pierre Aubry and Laura Quinby

No 16442, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Public pension funding has recently become a front-burner policy issue in the wake of the financial crisis and given the pending retirement of large numbers of baby boomers. This paper examines the current funding of state and local pensions using a sample of 126 plans, estimating an aggregate funded ratio in 2009 of 78 percent. Projections for 2010-2013 suggest that some continued deterioration is likely. Funded status can vary significantly among plans, so the paper explores the influence of four types of factors: funding discipline, plan governance, plan characteristics, and the fiscal situation of the state. Judging the adequacy of funding requires more than just a snapshot of assets and liabilities, so the paper examines how well plans are meeting their Annual Required Contribution and what factors influence whether they make them. The paper also addresses the controversy over what discount rate to use for valuing liabilities, concluding that using a riskless rate of return could help improve funding discipline but would need to be implemented in a manageable way. Finally, the paper assesses whether plans face a near-term liquidity crisis and finds that most have assets on hand to cover benefits over the next 15-20 years. The bottom line is that, like private investors, public plans have been hit hard by the financial crisis and their full recovery is dependent on the rebound of the economy and the stock market.

JEL-codes: H75 (search for similar items in EconPapers)
Date: 2010-10
Note: AG PE POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Munnell, Alicia H. & Aubry, Jean-Pierre & Quinby, Laura, 2011. "Public pension funding in practice," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(02), pages 247-268, April.
Published as Public Pension Funding in Practice , Alicia H. Munnell, Jean-Pierre Aubry, Laura Quinby. in The Economics of State and Local Pensions , Brown and Clark. 2011

Downloads: (external link)
http://www.nber.org/papers/w16442.pdf (application/pdf)

Related works:
Journal Article: Public pension funding in practice (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:16442

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w16442

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().