PUBLIC PENSION SITUATION NOT SO DIRE
May 8, 2006
With some exceptions, defined benefit (DB) public pensions remain in reasonably good condition, says Keith Brainard of the National Association of State Retirement Administrators.
- Some 70 percent of public pensions are funded at 80 percent or higher -- a level which indicates actuarial health.
- Despite a recent drop in public pension fund assets from $2.29 trillion to $1.93 trillion, funding levels remain at 87.5 cents for every dollar of liability.
Due to the recent drop in funding levels to $1.93 trillion, some policymakers have responded by calling for an end to traditional DB pension plans for public employees. Such an action, says Brainard, involves real costs:
- Terminating a pension plan under most circumstances not only yields little or no savings, but often increases costs, at least for the first few years.
- Terminating a pension benefit impairs the ability of public employers to continue to attract and retain the skilled workers needed to perform essential public services.
- Public DB plans are a helpful workforce management tool, promoting the orderly turnover of personnel and enabling employers to reduce or adjust the size and cost of their workforce.
Applying Social Security's problems to public pensions, analysts have questioned the viability of state and local DB plans. However, they overlook the fact that public DBs are primarily prefunded, and thus more resistant to demographic changes, says Brainard.
Source: Keith Brainard, "Opposing View: Public Pension Situation Not So Dire," Heartland Institute, March 2006.
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