Public pension plans will see virtually no change in their average funding ratio during fiscal year 2020 despite the ongoing COVID-19 pandemic, research from the Center for State and Local Government Excellence and the Boston College Center for Retirement Research found.
And while the financial strains that the recession put on plan sponsors could make it more difficult for them to pay their required contributions, the research suggests that small public plans have sustainable cash flows. The exceptions, of course, are the worst-funded plans.
State and local plans appear to have similar short- and near-term paths. Funded ratios for state plans are projected to be 72.4% on average for 2020, vs. 70.8% for local plans.
The research projects local plans to have an aggregate funded ratio between 61.7% and 64.6% by fiscal year 2025, while state plans are projected to have an aggregate funded ratio between 65.2% and 68.2% and during that period.
"It is still unclear the extent to which the COVID-19 pandemic and related economic downturn will negatively affect the overall finances of state and local governments," said Joshua Franzel, SLGE president and CEO, in a news release. "Given the differences in revenue structures, intergovernmental transfers, access to capital and overall service and programmatic responsibilities, it is likely that there will be both similarities and differences regarding impacts on states vs. localities."