State and Local Pension Funds 2022

Abstract

This paper updates the status of state and local pension funds as of the end of fiscal year 2022. Total reported unfunded liabilities increased to $1.572 trillion from $1.076 trillion in the prior year, due to weak investment returns and actuarial factors. In contrast, the market value of the unfunded liability fell to $5.120 trillion from $6.501 trillion due to substantial increases in risk-free discount rates that are appropriate for measuring the value of a form of government debt with strong statutory and contractual rights. Both the unfunded liability and the annual pension costs for new benefit accrual remain substantially understated. Investment returns were negative 3.2% in fiscal year 2022, underperforming assumed discount rates by approximately 10%. Employer contributions increased substantially, with the contribution rate as of payroll rising from 26.9% in 2021 to 28.3% in 2022. The increase in employer contributions is partly driven by supplemental contributions that state and local government made at a time when they experienced budgetary surpluses inclusive of pandemic-related relief.

Keywords: Public Pensions, State and Local Government, Retirement Policies, Pension Cost, Government Debt

JEL Classification: H55, H75, J26, J45