Funding for public pension plans accounted for just 3% of state and local government spending in 2009, the most recent data available, according to a report from the National Association of State Retirement Administrators.
Spending levels varied among states. Alaska, California and Nevada spent the highest percentage on public pension plans, at 6.35%, 5.98% and 5.39%, respectively. Rhode Island spent the fourth-largest amount at 4.87%, followed by Illinois, 4.8%.
The variation in pension spending levels can be attributed to the differences in benefit levels, employer contributions and the size of unfunded liabilities among states. Cities face an even greater challenge; pension plan costs for cities are higher than states by about 50% of total spending. This is because of “the types of services delivered at the local level and the resulting larger sharer of municipal budgets that is committed to salaries,” according to the report.
According to the NASRA report, about 60% of public pension plan revenue comes from investment returns, while 28% comes from employer contributions and 12% from employee contributions.
Public pension plan spending has generally remained stable over the past 30 years, according to the report. State and local governments spent an average of 4% on public pension plans in 1980 and 2.9% in 2009.
