The State of Local Government Pensions

State government pensions have attracted considerable media and scholarly attention. Less well understood are the nation’s 3,196 locally administered plans. This paper represents a first step toward filling this gap. After reviewing issues common to state and local plans, it summarizes existing data and research on local pensions. Based on their own technical assumptions, local plans are as well funded as their statewide counterparts (Munnell et al., 2011).

However, applying a lower discount rate and generalizing from the nation’s largest municipal plans (those with assets above $1 billion), researchers have estimated aggregate unfunded liabilities of $574 billion (Novy-Marx and Rauh, 2011). Results from an original news scan suggest that pensions are already burdening some local budgets. Key issues going forward will be determining how local government employee pension costs affect current municipal cash flows and whether pension funding status is capitalized in local property values.