The estimated aggregate funding ratio of U.S. public pension plans has increased to 74.7% in fiscal year 2021, a report from the Center of Retirement Research at Boston College said.
It is an increase of nearly 2 percentage points from the estimate of 72.8% for fiscal year 2020.
The report utilizes data from the pension plans' most recently released actuarial reports to make plan-by-plan projections.
Despite the estimated improvement, the report notes the aggregate ratio has yet to improve enough to exceed pre-financial crisis numbers. For example, the new estimate still falls below the 75.8% ratio measured for fiscal year 2010.
Most public plan fiscal years end June 30.
The report also asked whether the recent decline in public employment affected public pension plans. As a result of the economic impact of the COVID-19 pandemic, state and local governments eliminated nearly 1.5 million workers between March and August 2020, reducing the overall employment number by 0.5%.
First, the report noted that public pension finances may be negatively affected slightly since pension contributions must be calculated two or three years in advance based on expected payrolls.
"The amortization payment — which currently makes up two-thirds of the average pension contribution for governments — is a fixed-dollar amount required to reduce unfunded liabilities," the report said. "But, for budgeting purposes, the required amortization amount is expressed as a percentage of total expected payrolls because a salary rate is more convenient for billing across various government departments. When the time comes for these departments to pay their annual pension contributions, the amortization rate — which was calculated based on total expected payroll — is applied to employees' actual salaries in the contribution year."
The report also notes that the decline in payroll employees resulted in contribution rates that were 2.2 percentage points higher than they would have been if the number of payroll employees had grown as expected.
The report is available on the center's website.