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Public Pension Funds Recovering, But Many Still Too Weak To Keep All Promises

First Posted: 04/28/11 06:54 PM ET Updated: 06/28/11 06:12 AM ET

Pension Plans

A fresh annual survey of the nation's public pension plans released Thursday revealed that government employee retirement funds plunged in value by a stunning 24 percent in 2009, before recovering many of those losses last year.

The snapshot of the nation's retirement savings underscores how the financial crisis and the Great Recession combined to assail national fortunes, imperiling future generations of retirees.

In the fiscal year ending June 30, 2009, state retirement systems lost nearly a quarter of their value, or $641.3 billion, according to new data released Thursday by the U.S. Census Bureau. This left $2.0 trillion in the nation's public pension funds.

The new data comes from the Census Bureau's 2009 Annual Survey of Public Employee Retirement Systems, which details the state of the nation’s public pension plans on June 30, 2009.

“June 30, 2009 was very near the bottom of the market’s decline,” said Keith Brainard, research director at the National Association of State Retirement Administrators. “A lot, quite a bit really has changed since that time.”

By the end of calendar year 2010, public pension plans had managed to regain most of their lost value according to a separate report released by the National Association of State Retirement Administrators in April.

“They remained invested,” said Brainard. “As confidence in markets has improved and as global equity values have improved and also real estate and private equities have improved, so have the fund balances. That’s what’s fed this growth.”

The health of the nation’s public pension funds affects not just the 7.5 million workers who have retired from state and local government jobs but the communities where they live. Public benefit funds pay out a total of $15 billion per month or $180 billion per year to people living in every city and county around the nation. Retirees use that money to cover the cost of everything from health care and shoes to housing and Early Bird Special dinners. It is a key source of spending that helps to drive local economies.

The U.S. Census Bureau has been collecting information about the nation’s public pension fund balances since 1957. But fund balances are just part of the story.

Most states are legally obligated to pay public employees retirement benefits. By fiscal year 2009, 31 states around the country had underfunded pension plans. These states were collectively $1.26 trillion short of what is needed to continue to make good on promises to pay public employee pensions and other retirement benefits.

Pension plan shortfalls widened in some states and spread to new ones in 2009 because market activity ate away at pension fund values at the same time that states faced declining tax revenue. The problem was made worse in some states when they slashed their contributions to employee retirement funds in an effort to address budget gaps.

States such as Colorado and Minnesota decided to cut something different, Brainard said. They reduced promised cost-of-living increases for future and current retirees. Lawsuits related to these changes are pending.

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