Public pensions

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Public pensions
Pension health by state
Pension terms
Pensions on the ballot
State finances on the ballot
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Public pensions provide monetary benefits to public workers when they retire. State pension systems vary considerably in their organization, management, and accounting principles, making them difficult to compare. The data below comes primarily from the United States Census Bureau.

HIGHLIGHTS
  • According to the United States Census Bureau, as of fiscal year 2016, there were a total of 6,276 public pension systems with 20,924,361 members among them.
  • Contributions to public pension systems in fiscal year 2016 totaled $191 billion, with 73.36 percent coming from government sources.
  • Public pension systems made $303 billion in payments in fiscal year 2016.

    • Contributions and payments

    In fiscal year 2016, contributions to public pension systems in the United States totaled $191.6 billion. Of this total, $140.6 billion, or 73.36 percent, came from governments, while the remainder came from employee contributions. The map below compares government contributions to public pension plans as percentages of total contributions. For states shaded with darker colors, government contributions constituted a greater share of total contributions. For states shaded with lighter colors, government contributions constituted a smaller share of total contributions. The table below the map provides further details about contributions to public pensions. To see the data in the table, click "[show]" in the table header.[1]

    Government contributions to public pensions as percentages, fiscal year 2016

    Public pension systems in the United States paid out a total of $303.6 billion in fiscal year 2016. The table below details the payments in each state. To see the data in the table, click "[show]" in the table header.[1]

    Membership and participation

    According to the United States Census Bureau, there were a total of 6,276 public pension systems across the nation as of fiscal year 2016. Of those systems, 299 were administered at the state level, and 5,977 at the local level. In those 6,276 systems, a total of 20.9 million people were members. Of these members, 70.02 percent were active. Active members are defined as members who are making contributions or receiving benefits from a pension system. The map below details what percentage of members are active in each state; a darker shade indicates a higher percentage of active members while a lighter shade indicates a lower percentage of active members. The table below the map provides further details for each state. Click "[show]" in the table below to display the data.[1]

    Active membership in public pension plans as percentages, 2016

    Cash and investment holdings

    Investments are a crucial part of the pension process. The goal is that, by investing pension contributions, the pensioner will receive more money when he or she retires than he or she and the employer were able to contribute. These investments can come in the form of cash investments, short-term investments, securities, or other investments. Cash investments are usually low-risk, short-term investments that have a lower rate of return than other types of investments. Short-term investments are riskier than cash investments, but have the potential for greater returns. Securities can refer to stocks, bonds, or other types of financial certificates that hold some sort of financial value. As the values of these securities change, they can be traded to make a profit. While there are other applications of securities investments, this represents one of the most common practices.[2][3][4]

    As of fiscal year 2016, state and local pension systems held $3.74 trillion in total cash and investment holdings. The table below summarizes pension system cash and investment holdings for each state. The columns labeled "Total cash and short-term investments," "Total securities," and "Total other investments" are subsets of the grand total. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000). Click "[show]" in the table below to display the data.[1]

    Plan types

    There are three primary types of public pension plans: defined benefit plans, defined contribution plans, and hybrid plans.

    Defined benefit plans

    Defined benefit plans provide a guaranteed lifetime retirement benefit based on an employee's years of service and salary. Benefit amounts, which are calculated differently from state to state, are determined by using a fixed multiplier that is set out by the plan. Although most statewide plans require employee contributions, the retiree's benefit is not tied directly to his orher contribution amount. The majority of public pension plans are defined benefit plans.[5]

    Defined contribution plans

    In contrast, in defined contribution plans, both employers and employees contribute to the employee account. Then, the employee determines how the contributions are invested, usually selecting from options presented by the plan administrator. At retirement, the amount of money in the fund is the basis of the employee's retirement benefit. The sponsoring public entity does not ensure a particular benefit amount, and usually does not provide post-retirement benefit cost of living increases.[5]

    Hybrid plans

    Cash balance plans are a kind of hybrid plan and, like defined contribution plans, they provide each member with an individual account to which, in the public sector, both employees and employers make contributions. Funds in the members’ accounts are pooled for investment purposes, members’ balances are guaranteed, and members are guaranteed an annual rate of return.[6]

    Under another kind of hybrid plan members eligible for both a defined benefit and a defined contribution plan. In Indiana, for example, both components are mandatory. Employer contributions finance the defined benefit annuity, and employee contributions accumulate in an individual retirement account (which comprises the defined contribution part of the plan). [6]

    Pension health

    See also: Public pension health by state

    Pension health is a term used to describe the overall state of a pension system. It can be difficult to gauge pension health in each state; studies use a variety of calculations to determine a pension system's average liabilities, unfunded liabilities, funded ratio, and other metrics. The information on this page comes from two reports by two separate organizations: the Pew Charitable Trusts and the Hoover Institution.

    HIGHLIGHTS
  • The Pew Charitable Trusts’ annual analysis of pension health for 2018 notes that “at $1.24 trillion, the 50-state pension funding gap—the difference between a state retirement system’s assets and its liabilities—improved slightly in 2018 primarily due to strong investment performance. However, after a decade of economic recovery, the aggregate pension funding gap remains historically high and could increase by up to $500 billion based on market returns through March 2020, including recent losses related to the COVID-19 pandemic. In addition, the disparity between well-funded and underfunded state retirement systems is greater than it has ever been.”
  • The Hoover Institution’s "Hidden Debts, Hidden Deficits" 2019 update highlights that “the total unfunded pension debt nationwide to public employees rose between 2015 and 2017 from $3.846 trillion to $4.145 trillion. More important, in FY2017, state and local governments contributed $185 billion to pension payments, or 8.0 percent of every dollar they raised in revenue, up dramatically from 4.9 percent in FY2015. However, this amount still proved insufficient, as the true annual cost of keeping pension liabilities from rising would be approximately $338 billion. This ‘true cost’ figure amounts to over 14 percent of all the revenue generated by state and local governments, or a whopping 21 percent of their tax revenue."

    • See also

    Click on a state below to read more about public pensions in that state.


    http://ballotpedia.org/Public_pensions_in_STATE

    External links

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 United States Census Bureau, "State and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2016," accessed September 8, 2017
    2. ↑ Investopedia, "Cash investment definition," accessed April 6, 2015
    3. ↑ Investopedia, "Short-term investments definition," accessed April 6, 2015
    4. ↑ Investopedia, "Securities," accessed April 6, 2015
    5. ↑ 5.0 5.1 National Conference of State Legislatures, "State Retirement System Defined Contribution Plans," accessed September 2009
    6. ↑ 6.0 6.1 National Conference of State Legislatures, "Checklist of State Defined Benefit, Defined Contribution and Hybrid Plans for State Employees and Teachers," accessed August 2012
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