Legal constraints kept 44% of state and local pension plans from making the annual minimum contribution in 2006, according to a new brief from the Center for State and Local Government Excellence and the Center for Retirement Research at Boston College.
Factors related to failure to make minimum contributions for plans that were not constrained included less rigorous cost methods, being a larger plan, being state-administered and being in a state with high overall debt. Most plans use the entry-age method — which assumes larger obligation for active employees until they retire and requires larger contributions — over the projected unit credit method.
“Our hypothesis is that sponsors that opt for the cheaper funding regime — namely, the projected unit credit — may be less committed to funding their plans and therefore less likely to make the full annual required contribution,” the brief said.
