Stability in Overall Pension Plan Funding Masks a Growing Divide

[Jean-Pierre Aubry]

The brief’s key findings are:

• Under traditional accounting rules, the aggregate funded ratio for state and local pension plans in 2017 was 72 percent, largely unchanged from recent years.
• This overall stability, however, masks a growing gap among plans: the average funded ratio was 90 percent for the top third but just 55 percent for the bottom third.
• The plans in the bottom third are in worse shape because, on average, they receive lower long-term investment returns and pay less of their required contributions.
• In addition, all plans face the possibility of a market downturn, which could set back funding for several years.