Graphic: Pension liabilities burden large cities
Pension funding gaps present an acute problem at the municipal level. Pension plans continue to eat up significant portions of cities’ annual budgets, often accounting for more than debt service, leaving less cash available for cities’ core services. Portfolio returns can’t be counted on to fill the void.
In a hole: Pension liability payments eat up about 13%, on average, of the annual budget of the 15 largest U.S. cities. For those with the highest liabilities, that number moves to 20%.
Lower expectations: Return assumptions at the county, city and school district level across the eight states that contain the 15 cities have fallen on average 75 basis points since 2007. Nationally, the average return assumption is down 60 basis points.
No help: Required contributions also have fallen in all but one of those states, in contrast to the national trend. And among the cities with the worst-funded plans, not all contributions are being paid.
Risky bets: To counter declines in funding ratios since 2007*, municipal plans across the eight states have seen a slight increase in their risk asset allocations. With contribution levels lower, investment returns need to carry more of the load to close the funding gap.
*Asset allocation data are not available for plans in Florida or Ohio prior to 2010. Sources: S&P Global LLC, Center for Retirement Research at Boston College
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