Most states are funding their pensions, study finds

Most governments made good-faith efforts to fund their pension plans, and only a few “severely neglected” their funding responsibilities, said a new study released Wednesday by the National Association of State Retirement Administrators.

NASRA researchers took a 13-year look at annual required contributions to 112 state-administered public pension funds, including the District of Columbia, from fiscal years 2001 to 2013. The pension funds represent more than 80% of all public plan assets and participants.

Over the time period studied, plans received an average of 89% of their required annual contributions, and all but six states paid at least 75%. New Jersey topped the list of states that have “conspicuously failed to adequately fund their pension plans,” the report said, averaging just 38% of its required annual contributions over that period. Other states paying below 75% on average include Pennsylvania, Washington, North Dakota, Kansas and Colorado.

“There is a perception that many plans and states have failed, when in fact it's only a handful of states. Most states have made a reasonably good effort,” said Keith Brainard, NASRA research director, in an interview. Mr. Brainard said that a few “outliers can exert a disproportionate effect on the whole.”

NASRA defines a good-faith effort to fund the ARC as paying 95% or more. Half of all plans received at least 95%.

Among other findings, the study shows that the states paid more than 100% of the required amount on a weighted average basis in fiscal year 2001. That dipped to 83% in fiscal year 2006 and to a low of 79% in fiscal year 2012. It increased to 81% in 2013.

NASRA noted in the study that failure to make the good-faith effort increases future costs of funding. It also helps to have policies in place to guarantee that the payments are made, although some states without them did well, while others with policies failed to follow them. In general, Mr. Brainard said, “policies that require payment of the ARC result in better funding outcomes. Shorting the ARC simply kicks the can down the road.”

Hazel Bradford writes for Pensions & Investments, a sister publication of Business Insurance.