Making Informed Choices About Public Sector Pension Plans

NLC’s latest Municipal Action Guide includes a historical look at public sector pension plans, an overview of approaches to pension reforms, and a worksheet to help local officials navigate decision-making regarding their city’s pension plan.

City leaders across the country are faced with a responsibility to ensure that the municipal workforce has secure retirement. NLC’s latest report helps identify trends, challenges and solutions to pension funding. (Getty Images)

Pensions play a critical role in the ability of local governments to attract and retain the workforce needed to meet citizen demands. The costs associated with this employee benefit, however, can be substantial. NLC’s new report, Making Informed Choices about Public Sector Pension Plans, examines the reforms that cities have made in response to funding challenges and the impact of these changes. It also offers ways that local leaders can become more active and informed decision makers, regardless of whether their city or state runs their employees’ pension plan.

Pension funding took a big hit as the Great Recession in 2008 materialized. The recession had an added component – beyond its depth and length – that previous recessions did not: a nearly decade-long period of exceptionally low interest rates. This feature of the recession resulted in lower expected returns and therefore higher pension funding requirements. In response, many cities instituted reforms, resulting in improvements to public pension funding ratios.

As part of our annual City Fiscal Conditions report, NLC surveyed city finance officers about the reforms made to their plans since the recession, regardless of whether their city or the state administers the plan. The following is an overview of their responses:

City Pension Reforms, 2009-2016

Change %
Increased employee contribution rate 33
Changed plan design 22
Reduced benefits 17
Reduced COLA 12
Increased eligibility requirements 8
Increased vesting period 7
Other

Read or download the full Municipal Action Guide, Making Informed Choices about Public Sector Pension Plans.

About the author:Christiana K. McFarland is NLC’s Research Director. Follow Christy on Twitter at @ckmcfarland.

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