By Nick Mann | 6 March 2012
US state and local government pension plans will face a tough struggle to meet their obligations in the long term as budgetary pressures increase, the US Government Accountability Office has said.
Most of the schemes, which cover some 27 million employees and beneficiaries, have sufficient assets to cover their commitments for a decade or more, the auditors found. This is despite incurring significant investment losses from the recent economic downturn. However, sustainability will be difficult in the future, the watchdog warns in its report, published on Friday.
Census Bureau figures quoted in the report show that the plans’ investments lost more than $672bn in 2008 and 2009. This had contributed to a growing gap between pension schemes’ asset values and their projected liabilities, forcing state and local government sponsors to pay more to keep their plans sustainable.
At the same time, fiscal pressures on state and local government budgets have added to the challenges, the report says. ‘Higher pension contributions have been needed at the same time as state and local governments have faced added pressures to balance their budgets.’
Since 2008, many states and localities have taken action to strengthen the long-term financial condition of their schemes, the auditors say. In 35 states, benefits have been reduced – in particular for future employees – while half of the states have increased member contributions.
Three states – Georgia, Michigan and Utah – have changed the make-up of their scheme to shift some investment risk to employees, the auditors found.
But they say ‘continued vigilance’ is needed to ensure that states and localities can continue to meet their pension obligations. In particular, sponsors will have to continue to make adequate contributions to plans, and investment returns will have to meet their long-term assumptions.
‘Going forward, growing budget pressures will continue to challenge state and local governments’ abilities to provide adequate contributions to help sustain their pension plans and ensure a secure retirement for current and future employees,’ they add.
