(February 5, 2013) — Locally-administered pension plans are slightly less funded than state-run plans even though local plan sponsors generally pay a larger share of their annual required contribution, research by Boston College concludes.
The Center for Retirement Research at Boston College found, based on 2010 and 2011 data, that locally-administered pension plans are 72% funded while state-run plans are 76% funded.
So why the discrepancy?
The explanation is that state plans have historically earned higher returns because they invest more in risky assets, the researchers concluded.
The authors also discover that for mature plans with substantial assets, higher returns more than offset lower contributions.
“Although press accounts often suggest that locally-administered plans are significantly less funded than those administered by states, our sample of 128 local plans from 43 states suggests that they are nearly as well funded and have been closing the gap in recent years,” the authors conclude. “Averages, as always, hide a lot of variation and a number of plans, including large cities such as Chicago, Philadelphia and Providence, have seriously underfunded plans.”
In addition, the authors note–analyzing the differences between local and state pensions–that only 42% of local pension contributions go to locally-administered plans, while 58% go to state plans. “Thus, an equally, or perhaps more, important issue is the burden of local pension contributions–to both local and state plans–on local budgets.”
