State and local government staffing is being negatively affected by public pension debt, said a white paper from the Manhattan Institute.
Since 2010, according to Bureau of Labor Statistics data, the change in total jobs in state and local governments has contracted by 1.5% compared to growth in the private sector of 11.3%, the first time such a discrepancy has occurred since 1955, the report said.
Because 84% of state and local workers are participants in defined benefit plans, while only 18% of private-sector employees are in DB plans, and because the assumed rate of return of those public plans is between 7% and 8%, those plans are taking on more risk leading to greater costs, the report says, leading to less robust job growth in that category.
According to Census Bureau data the report cites, while public-sector plan assets grew to $3.3 trillion in 2013 from $2.2 trillion in 2002, the average funding ratio still fell to 71% from 93.2%. That same data calculates that state and local pension costs as a share of general revenue has hit 4% for the first time in 2013. In 2002, that number was slightly more than 2%.
Pension-related volatility, according to the report, is permanent, and even if all 19 million state and local employees were suddenly enrolled in a defined contribution plan next year, “pension debt would remain,” it says.