The Sustainability of State & Local Pensions: A Public Finance Approach

Link: https://crr.bc.edu/briefs-state-local-pensions/the-sustainability-of-state-local-pensions-a-public-finance-approach/

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Key findings:

  • Many experts favor full prefunding of state and local pensions to maintain fiscal sustainability, which means big contribution hikes.
  • This analysis explores an alternative: stabilizing pension debt as a share of GDP.
  • Under current contribution rates, baseline projections show no sign of a major crisis in the next two decades even if asset returns are low.
  • Yet, many plans will be at risk over the long term of exhausting their assets, so action will be needed.
  • Plans can reach a sustainable footing by stabilizing their debt-to-GDP ratio, with much smaller contribution hikes than under full funding.

Author(s): Louise Sheiner

Publication Date: 11 April 2023

Publication Site: Center for Retirement Research at Boston College