At the outset of the pandemic recession, many feared it would undermine workers’ employer-sponsored retirement plans.
State and local employees who are not covered by Social Security would have been particularly vulnerable, as they lack the buffer this program offers.
Their employer defined benefit plans would have been hurt by a long recession with poor investment returns and reduced contributions due to tax shortfalls.
Instead, these plans exceeded their return targets; tax revenues held up; and government sponsors got stimulus aid, so plan funded ratios actually improved.
And long-term structural headwinds such as negative cash flows and aggressive return targets still pose little risk to their ability to pay future benefits.
Author(s):Jean-Pierre Aubry and Kevin Wandrei
Publication Date: January 2022
Publication Site: Center for Retirement Research at Boston College, Working Paper
Full Report: https://crr.bc.edu/wp-content/uploads/2021/06/SLP78.pdf
The aggregate funded ratio improved from 73 to 75 percent from FY 2020 to 2021. At the same time, contribution rates rose from 21 to 22 percent of payrolls.
While initial expectations for public pensions were low due to COVID, financial markets rebounded and municipal tax revenues were quite resilient.
Yet one other COVID-related factor – cuts to the state and local workforce – impacted public pension finances in FY 2021.
These cuts had little impact on funded status and required contribution amounts, but they do explain the rise in contribution rates, which are expressed as a share of lower payrolls.
Author(s): Jean-Pierre Aubry, Kevin Wandrei
Publication Date: June 2021
Publication Site: Center for Retirement Research at Boston College