Basic Facts

Pension dollars help the economy of every jurisdiction. Public employees live in every city and county in the nation. More than 90 percent retire in the same jurisdiction where they worked. The $200 billion in annual benefits distributed from pension trusts are a critical source of economic stimulus to communities throughout the nation, and act as an economic stabilizer in difficult financial times. Recent studies have documented public retirement system pension distributions annually generate over $29 billion in federal tax revenue, more than $21 billion in annual state and local government tax revenue, and a total economic impact of more than $358 billion.

■ With nearly $3 trillion set aside in pension trusts for current and future retirees, most states and cities have substantial assets to weather the economic crisis
• Public pensions are paid out over decades; state and local government retirees do not draw down their pensions all at once.
• State and local employee retirement systems do not seek federal financial assistance. One-size-fits-all federal regulation is neither needed nor warranted and would only inhibit recovery efforts at the state and local levels.

■ State and local governments are taking steps to strengthen their pension reserves and have a long-term time horizon.
• Since 2009, more than 40 states have made changes to benefit levels, contribution rate structures, or both; many local governments have made similar fixes to their plans.
• While pension obligations are often backed by explicit state constitutional or statutory guarantees, states are generally free to change any provision of their retiree health plans, including termination, as they do not carry the same legal protections. It is misleading to combine unfunded pension liabilities with unfunded retiree health benefits as an argument that a pension meltdown is impending.

■ Long-term investment returns of public funds continue to exceed expectations.
• Over the last 25 years, which saw three economic recessions and four years of negative median public fund investment returns, actual public pension investment returns averaged 8.8 percent, which exceeded projections.
• These actual returns exceed the 7.9 percent average public pension investment return assumption, as well as the average assumed rate of return used by the largest corporate pension plans.

■ Retirement systems remain a small portion of state and local government budgets.
• The portion of combined state and local government spending dedicated to retirement system contributions is about four percent. Pensions are a trust to which public retirees and their employers contributed while they were working.
• While there are pension trusts that are fully funded with enough assets for current pension obligations, there also are legitimate concerns about the extent of underfunding, due primarily to the Great Recession and stock market declines. In most cases, a modest increase in contributions to take advantage of compounded interest, modifications to employee eligibility and benefits, or both, will be sufficient to remedy the underfunding problem.
• The unprecedented number of benefit and financing changes in public plans over the last few years will help to minimize any required increases. The vast majority of public employees are required to contribute a portion of their wages—typically, five to ten percent—to their state or local pension, and these contribution rates are being raised by many state and local governments.

Read the full 2012 Fact Sheet on State and Municipal Bankruptcy, Municipal Bonds, State and Local Pensions

National Governors Association
National Conference of State Legislatures
The Council of State Governments
National Association of Counties
National League of Cities
The U.S. Conference of Mayors
International City/County Management Association
National Association of State Budget Officers
National Association of State Auditors, Comptrollers and Treasurers
Government Finance Officers Association
National Association of State Retirement Administrators