Download - STATE AND LOCAL GOVERNMENT PENSION PLANS
ST
AT
E A
ND
LO
CA
L
GO
VE
RN
ME
NT
P
EN
SIO
N P
LA
NS
Eco
no
mic
Do
wn
turn
S
pu
rs E
ffo
rts
to
Ad
dre
ss C
ost
s an
d
Su
stai
nab
ilit
y R
epo
rt t
o C
on
gres
sio
nal
Req
ues
ters
March
2012
GA
O-1
2-32
2
Un
ited
State
s G
overn
men
t A
cco
un
tab
ilit
y O
ffic
e
GA
O
U
nite
d St
ates
Gov
ernm
ent A
ccou
ntab
ility
Offi
ce
H
ighl
ight
s of
GA
O-1
2-32
2, a
repo
rt to
co
ngre
ssio
nal r
eque
ster
s
Mar
ch 2
012
STA
TE
AN
D L
OC
AL
GO
VE
RN
ME
NT
PE
NSI
ON
P
LAN
S E
co
no
mic
Do
wn
turn
Sp
urs E
ffo
rts
to
Ad
dress C
osts
an
d S
usta
inab
ilit
y
Wh
y G
AO
Did
Th
is S
tu
dy
Ove
r 27
mill
ion
empl
oyee
s an
d be
nefic
iarie
s ar
e co
vere
d by
sta
te a
nd
loca
l gov
ernm
ent p
ensi
on p
lans
. H
owev
er, t
he re
cent
eco
nom
ic
dow
ntur
n an
d as
soci
ated
bud
get
chal
leng
es c
onfro
ntin
g st
ate
and
loca
l go
vern
men
ts p
ose
som
e qu
estio
ns a
s to
the
sust
aina
bilit
y of
thes
e pl
ans,
and
w
hat c
hang
es, i
f any
, sta
te a
nd lo
cal
gove
rnm
ents
are
mak
ing
to s
treng
then
th
e fin
anci
al c
ondi
tion
of th
eir p
ensi
on
plan
s. G
AO
was
ask
ed to
exa
min
e
(1) r
ecen
t tre
nds
in th
e fin
anci
al
cond
ition
of s
tate
and
loca
l gov
ernm
ent
pens
ion
plan
s an
d
(2) s
trate
gies
sta
te a
nd lo
cal
gove
rnm
ents
are
usi
ng to
man
age
pens
ion
cost
s an
d th
e im
pact
s of
thes
e st
rate
gies
on
plan
s, s
pons
ors,
em
ploy
ees,
and
retir
ees.
To a
ddre
ss th
ese
topi
cs, G
AO
anal
yzed
var
ious
mea
sure
s of
sec
tor-
wid
e fin
anci
al c
ondi
tion
base
d on
na
tiona
l-lev
el d
ata
on p
ensi
on fu
ndin
g fro
m th
e U
.S. C
ensu
s B
urea
u an
d ot
hers
, and
revi
ewed
info
rmat
ion
on
rece
nt s
tate
legi
slat
ive
chan
ges
affe
ctin
g go
vern
men
t pen
sion
s fro
m
annu
al re
ports
pre
pare
d by
the
Nat
iona
l Con
fere
nce
of S
tate
Le
gisl
atur
es (N
CS
L). G
AO
did
not
as
sess
the
soun
dnes
s of
indi
vidu
al
plan
s, b
ut d
id o
btai
n do
cum
ents
and
co
nduc
t int
ervi
ews
with
pen
sion
and
bu
dget
offi
cial
s in
eig
ht s
tate
s an
d ei
ght l
ocal
ities
, sel
ecte
d to
illu
stra
te th
e ra
nge
of s
trate
gies
bei
ng im
plem
ente
d to
mee
t cur
rent
and
futu
re p
ensi
on
fund
ing
requ
irem
ent.
The
Inte
rnal
Rev
enue
Ser
vice
and
S
ocia
l Sec
urity
Adm
inis
tratio
n pr
ovid
ed
tech
nica
l com
men
ts, w
hich
wer
e in
corp
orat
ed, a
s ap
prop
riate
.
Wh
at
GA
O F
ou
nd
Des
pite
the
rece
nt e
cono
mic
dow
ntur
n, m
ost l
arge
sta
te a
nd lo
cal g
over
nmen
t pe
nsio
n pl
ans
have
ass
ets
suffi
cien
t to
cove
r ben
efit
paym
ents
to re
tiree
s fo
r a
deca
de o
r mor
e. H
owev
er, p
ensi
on p
lans
stil
l fac
e ch
alle
nges
ove
r the
long
term
du
e to
the
gap
betw
een
asse
ts a
nd li
abili
ties.
In th
e pa
st, s
ome
plan
spo
nsor
s ha
ve n
ot m
ade
adeq
uate
pla
n co
ntrib
utio
ns o
r hav
e gr
ante
d un
fund
ed b
enef
it in
crea
ses,
and
man
y su
ffere
d fro
m in
vest
men
t los
ses
durin
g th
e ec
onom
ic
dow
ntur
n. T
he re
sulti
ng g
ap b
etw
een
asse
t val
ues
and
proj
ecte
d lia
bilit
ies
has
led
to s
tead
y in
crea
ses
in th
e ac
tuar
ially
requ
ired
cont
ribut
ion
leve
ls n
eede
d to
he
lp s
usta
in p
ensi
on p
lans
at t
he s
ame
time
stat
e an
d lo
cal g
over
nmen
ts fa
ce
othe
r fis
cal p
ress
ures
. Si
nce
2008
, the
com
bina
tion
of fi
scal
pre
ssur
es a
nd in
crea
sing
con
tribu
tion
requ
irem
ents
has
spu
rred
man
y st
ates
and
loca
litie
s to
take
act
ion
to s
treng
then
th
e fin
anci
al c
ondi
tion
of th
eir p
lans
for t
he lo
ng te
rm, o
ften
pack
agin
g m
ultip
le
chan
ges
toge
ther
. GAO
’s ta
bula
tion
of re
cent
sta
te le
gisl
ativ
e ch
ange
s re
porte
d by
NC
SL a
nd re
view
of r
efor
ms
in s
elec
ted
site
s re
veal
ed th
e fo
llow
ing:
Red
ucin
g be
nefit
s: 3
5 st
ates
hav
e re
duce
d pe
nsio
n be
nefit
s, m
ostly
for f
utur
e em
ploy
ees
due
to le
gal p
rovi
sion
s pr
otec
ting
bene
fits
for c
urre
nt e
mpl
oyee
s an
d re
tiree
s. A
few
sta
tes,
like
Col
orad
o, h
ave
redu
ced
post
retir
emen
t ben
efit
incr
ease
s fo
r all
mem
bers
and
ben
efic
iarie
s of
thei
r pen
sion
pla
ns.
Inc
reas
ing
mem
ber c
ontr
ibut
ions
: Hal
f of t
he s
tate
s ha
ve in
crea
sed
mem
ber
cont
ribut
ions
, the
reby
shi
fting
a la
rger
sha
re o
f pen
sion
cos
ts to
em
ploy
ees.
S
witc
hing
to a
hyb
rid a
ppro
ach:
Geo
rgia
, Mic
higa
n, a
nd U
tah
rece
ntly
im
plem
ente
d hy
brid
app
roac
hes,
whi
ch in
corp
orat
e a
defin
ed c
ontri
butio
n pl
an
com
pone
nt, s
hifti
ng s
ome
inve
stm
ent r
isk
to e
mpl
oyee
s.
At th
e sa
me
time,
som
e st
ates
and
loca
litie
s ha
ve a
lso
adju
sted
thei
r fun
ding
pr
actic
es to
hel
p m
anag
e pe
nsio
n co
ntrib
utio
n re
quire
men
ts in
the
shor
t ter
m b
y ch
angi
ng a
ctua
rial m
etho
ds, d
efer
ring
cont
ribut
ions
, or i
ssui
ng b
onds
, act
ions
th
at m
ay in
crea
se fu
ture
pen
sion
cos
ts. G
oing
forw
ard,
gro
win
g bu
dget
pr
essu
res
will
cont
inue
to c
halle
nge
stat
e an
d lo
cal g
over
nmen
ts’ a
bilit
ies
to
prov
ide
adeq
uate
con
tribu
tions
to h
elp
sust
ain
thei
r pen
sion
pla
ns.
Not
able
Cha
nges
to S
tate
-Spo
nsor
ed P
ensi
on P
lans
(Jan
uary
200
8 to
Jun
e 20
11)
Vie
w G
AO
-12-
322.
For
mor
e in
form
atio
n,
cont
act B
arba
ra D
. Bov
bjer
g at
(202
) 512
-72
15 o
r bov
bjer
gb@
gao.
gov,
or S
tanl
ey J
. C
zerw
insk
i at (
202)
512
-680
6 or
cz
erw
insk
is@
gao.
gov.
Page
i G
AO-1
2-32
2 S
tate
and
Loc
al P
ensi
ons
Lett
er
1
Bac
kgro
und
4P
lans
Hav
e Su
ffic
ient
Ass
ets
to P
ay N
ear-
Ter
m B
enef
its,
but
G
row
ing
Bud
get
Pre
ssur
es W
ill C
halle
nge
The
ir S
usta
inab
ility
7St
ates
and
Loc
alit
ies
Hav
e M
ade
Cha
nges
to
Red
uce
Cos
ts a
nd
Impr
ove
Pla
n Su
stai
nabi
lity
18C
oncl
udin
g O
bser
vati
ons
33A
genc
y C
omm
ents
34
App
endi
x I
Pro
file
s of
Sel
ecte
d St
ate
and
Loca
l Gov
ernm
ent
Pen
sion
s
36
App
endi
x II
A
ctua
rial
Met
hods
and
Ass
umpt
ions
for
Mea
suri
ng F
unde
d St
atus
fo
r P
ublic
Sec
tor
Def
ined
Ben
efit
Pla
ns
45
App
endi
x II
I G
AO
Con
tact
s an
d St
aff
Ack
now
ledg
men
ts
49
Tab
les
Tab
le 1
: Sta
te a
nd L
ocal
Pla
ns S
elec
ted
for
Rev
iew
3T
able
2: U
nder
stan
ding
the
Fin
anci
al C
ondi
tion
of
a P
ublic
Def
ined
B
enef
it P
lan
10T
able
3: M
edia
n C
ontr
ibut
ion
Rat
es f
or L
arge
Pla
ns a
s a
Per
cent
age
of P
ayro
ll
15
Fig
ures
Fig
ure
1: S
tate
and
Loc
al G
over
nmen
t P
ensi
on C
ontr
ibut
ions
, F
isca
l Yea
r 20
09
4
Fig
ure
2: I
nves
tmen
t R
etur
ns f
or S
tate
and
Loc
al G
over
nmen
t P
ensi
on P
lans
, Fis
cal Y
ears
200
5–20
09
9
Fig
ure
3: H
isto
rica
l Tre
nds
in t
he F
inan
cial
Con
diti
on o
f St
ate
and
Loca
l Gov
ernm
ent
Pen
sion
Pla
ns—
Agg
rega
te R
atio
of
Mar
ket
Ass
ets
to T
otal
Exp
endi
ture
s, 1
957–
2009
11F
igur
e 4:
Var
iabi
lity
in L
arge
Pla
ns’ R
atio
s of
Ass
ets
to A
nnua
l E
xpen
ditu
res,
Fis
cal Y
ear
2009
11
Con
tent
s Pa
ge ii
G
AO-1
2-32
2 S
tate
and
Loc
al P
ensi
ons
Fig
ure
5: A
ggre
gate
Fun
ding
Rat
io: T
rend
Dat
a fo
r La
rge
Stat
e an
d Lo
cal G
over
nmen
t P
ensi
on P
lans
, Fis
cal Y
ears
200
1–20
10
14
Fig
ure
6: D
istr
ibut
ion
of P
erce
ntag
e of
AR
C P
aid
for
Larg
e P
lans
, F
isca
l Yea
r 20
10
16
Fig
ure
7: N
otab
le C
hang
es t
o St
ate-
Spon
sore
d P
ensi
on P
lans
, Ja
nuar
y 20
08–J
une
2011
19F
igur
e 8:
Pen
sion
Obl
igat
ion
Bon
d Is
suan
ces
Nat
ionw
ide,
Jan
uary
20
06–J
une
2011
29 A
bbre
viat
ions
AR
C
an
nual
requ
ired
cont
ribut
ion
ASB
Ac
tuar
ial S
tand
ards
Boa
rd
CAF
R
Com
preh
ensi
ve A
nnua
l Fin
anci
al R
epor
t C
OLA
co
st-o
f-liv
ing
adju
stm
ent
CPI
-W
Con
sum
er P
rice
Inde
x fo
r Urb
an W
age
Earn
ers
and
C
leric
al W
orke
rs
ERIS
A
Empl
oyee
Ret
irem
ent I
ncom
e Se
curit
y Ac
t of 1
974
GAA
P
gene
rally
acc
epte
d ac
coun
ting
prin
cipl
es
GAS
B
Gov
ernm
enta
l Acc
ount
ing
Stan
dard
s Bo
ard
NAS
BO
Nat
iona
l Ass
ocia
tion
of S
tate
Bud
get O
ffice
rs
NC
SL
Nat
iona
l Con
fere
nce
of S
tate
Leg
isla
ture
s PO
B
pens
ion
oblig
atio
n bo
nd
This
is a
wor
k of
the
U.S
. gov
ernm
ent a
nd is
not
sub
ject
to c
opyr
ight
pro
tect
ion
in th
e U
nite
d S
tate
s. T
he p
ublis
hed
prod
uct m
ay b
e re
prod
uced
and
dis
tribu
ted
in it
s en
tiret
y w
ithou
t fur
ther
per
mis
sion
from
GA
O. H
owev
er, b
ecau
se th
is w
ork
may
con
tain
co
pyrig
hted
imag
es o
r oth
er m
ater
ial,
perm
issi
on fr
om th
e co
pyrig
ht h
olde
r may
be
nece
ssar
y if
you
wis
h to
repr
oduc
e th
is m
ater
ial s
epar
atel
y.
Page
1
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Un
ited
Sta
tes G
overn
men
t A
cco
un
tab
ilit
y O
ffic
e
Wash
ingto
n,
DC
20
54
8
Mar
ch 2
, 201
2
The
Hon
orab
le H
erb
Kohl
C
hairm
an
Spec
ial C
omm
ittee
on
Agin
g U
nite
d St
ates
Sen
ate
The
Hon
orab
le M
icha
el B
. Enz
i R
anki
ng M
embe
r C
omm
ittee
on
Hea
lth, E
duca
tion,
La
bor,
and
Pens
ions
U
nite
d St
ates
Sen
ate
The
rece
nt e
cono
mic
dow
ntur
n co
mbi
ned
with
con
tinui
ng b
udge
t ch
alle
nges
has
hei
ghte
ned
conc
erns
abo
ut th
e fin
anci
al c
ondi
tion
of s
tate
an
d lo
cal p
ensi
on p
lans
. Pen
sion
fund
ing
is a
long
-term
end
eavo
r, bu
t st
ates
and
loca
l gov
ernm
ents
ofte
n ha
ve a
nnua
l bal
ance
d bu
dget
re
quire
men
ts th
at c
an p
it go
vern
men
t con
tribu
tions
to p
ensi
on p
lans
ag
ains
t oth
er p
ress
ing
fund
ing
need
s. A
lthou
gh s
tate
and
loca
l ret
iree
bene
fits
are
not s
ubje
ct, f
or th
e m
ost p
art,
to fe
dera
l law
s go
vern
ing
priv
ate
sect
or re
tiree
ben
efits
, the
fede
ral g
over
nmen
t has
an
inte
rest
in
ensu
ring
that
all
Amer
ican
s ha
ve a
sec
ure
retir
emen
t. Th
is in
clud
es th
e ov
er 2
7 m
illion
peo
ple
cove
red
by s
tate
and
loca
l gov
ernm
ent p
ensi
on
plan
s.1
1.
rece
nt tr
ends
in th
e fin
anci
al c
ondi
tion
of s
tate
and
loca
l gov
ernm
ent
pens
ion
plan
s an
d
The
fede
ral g
over
nmen
t als
o ha
s an
inte
rest
in th
e ch
alle
ngin
g fis
cal s
ituat
ion
faci
ng th
e st
ate
and
loca
l sec
tors
bec
ause
fisc
al h
ealth
pr
esen
ts a
nat
iona
l cha
lleng
e sh
ared
by
all l
evel
s of
gov
ernm
ent.
In li
ght
of th
ese
conc
erns
, you
ask
ed u
s to
exa
min
e
2.
stra
tegi
es s
tate
and
loca
l gov
ernm
ents
are
usi
ng to
man
age
pens
ion
cost
s an
d th
e im
pact
s of
thes
e st
rate
gies
on
plan
s, s
pons
ors,
em
ploy
ees,
and
retir
ees.
1 Th
is to
tal i
s ba
sed
on th
e U
.S. C
ensu
s B
urea
u’s
2009
Sur
vey
of S
tate
and
Loc
al P
ublic
-E
mpl
oyee
Ret
irem
ent S
yste
ms
and
incl
udes
act
ive
mem
bers
, ina
ctiv
e m
embe
rs, a
nd
bene
ficia
ries.
Page
2
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
To d
escr
ibe
trend
s in
the
finan
cial
con
ditio
n of
sta
te a
nd lo
cal p
ensi
on
fund
s, w
e an
alyz
ed v
ario
us m
easu
res
of s
ecto
r-w
ide
finan
cial
con
ditio
n ba
sed
on e
xist
ing
natio
nal-l
evel
dat
a on
pen
sion
fund
ing.
We
anal
yzed
da
ta fr
om th
e U
.S. C
ensu
s Bu
reau
’s s
urve
ys o
f sta
te a
nd lo
cal r
etire
men
t sy
stem
s an
d fro
m th
e Pu
blic
Pla
ns D
atab
ase
deve
lope
d by
the
Bost
on
Col
lege
Cen
ter f
or R
etire
men
t Res
earc
h, w
hich
incl
udes
fina
ncia
l dat
a on
12
6 la
rge
stat
e an
d lo
cal d
efin
ed b
enef
it pl
ans
cove
ring
mor
e th
an 8
5 pe
rcen
t of t
otal
sta
te a
nd lo
cal g
over
nmen
t pen
sion
ass
ets
and
mem
bers
. To
bet
ter u
nder
stan
d th
e co
ntex
t for
thes
e tre
nds,
we
revi
ewed
exi
stin
g lit
erat
ure
on s
tate
and
loca
l gov
ernm
ent p
ensi
on p
lans
and
inte
rvie
wed
na
tiona
l exp
erts
on
stat
e an
d lo
cal g
over
nmen
t pen
sion
issu
es.
To id
entif
y th
e pr
eval
ence
of v
ario
us s
trate
gies
sta
te a
nd lo
cal
gove
rnm
ents
are
usi
ng to
man
age
pens
ion
cost
s, w
e an
alyz
ed n
atio
nal-
leve
l dat
a on
sta
te le
gisl
ativ
e ch
ange
s an
d us
e of
bon
ds to
fina
nce
thei
r pl
ans.
Spe
cific
ally
, to
iden
tify
legi
slat
ive
chan
ges,
we
anal
yzed
ann
ual
repo
rts p
repa
red
by th
e N
atio
nal C
onfe
renc
e of
Sta
te L
egis
latu
res
(NC
SL) s
umm
ariz
ing
sele
cted
sta
te p
ensi
on a
nd re
tirem
ent l
egis
latio
n en
acte
d fro
m J
anua
ry 1
, 200
8, th
roug
h Ju
ne 3
0, 2
011.
2 We
limite
d ou
r an
alys
is o
f the
se N
CSL
repo
rts to
cha
nges
affe
ctin
g br
oad
cate
gorie
s of
em
ploy
ees,
suc
h as
sta
te e
mpl
oyee
s, te
ache
rs, p
ublic
saf
ety
pers
onne
l, an
d lo
cal e
mpl
oyee
s w
ho a
re m
embe
rs o
f sta
te-a
dmin
iste
red
plan
s. In
so
me
limite
d in
stan
ces,
to b
ette
r und
erst
and
a le
gisl
ativ
e ch
ange
, we
revi
ewed
sup
plem
enta
l doc
umen
ts s
uch
as p
ensi
on p
lan
docu
men
ts a
nd
sum
mar
ies
of th
e le
gisl
atio
n pr
epar
ed b
y pl
ans,
sta
te le
gisl
ativ
e co
unse
l, or
sta
te a
genc
ies.
We
did
not c
ondu
ct a
n in
depe
nden
t leg
al a
naly
sis
to
verif
y th
e ac
cura
cy o
f the
info
rmat
ion
perta
inin
g to
rece
ntly
ena
cted
le
gisl
atio
n co
ntai
ned
in th
e N
CSL
repo
rts. T
o id
entif
y bo
nds
issu
ed fo
r the
pu
rpos
e of
fina
ncin
g pu
blic
pen
sion
pla
ns, w
e an
alyz
ed m
ultip
le s
ourc
es
of b
ond
data
, inc
ludi
ng M
erge
nt B
ondV
iew
er a
nd th
e El
ectro
nic
Mun
icip
al
Mar
ket A
cces
s sy
stem
.3
2 R
onal
d K.
Sne
ll, N
CS
L, P
ensi
ons
and
Ret
irem
ent P
lan
Ena
ctm
ents
, ann
ual r
epor
ts fo
r 20
08-2
010
and
2011
repo
rt as
of J
une
30, 2
011.
For
add
ition
al in
form
atio
n ab
out t
he s
tate
le
gisl
ativ
e ch
ange
s de
scrib
ed in
this
repo
rt, re
fer t
o th
e N
CS
L re
ports
.
We
supp
lem
ente
d th
ese
natio
nal-l
evel
dat
a by
in
terv
iew
ing
stat
e an
d lo
cal p
ensi
on a
nd b
udge
t offi
cial
s, a
nd re
view
ing
finan
cial
and
act
uaria
l rep
orts
, fro
m a
sm
all j
udgm
enta
l sam
ple
of p
lans
fro
m e
ight
sta
tes,
and
one
loca
lity
with
in e
ach
of th
ese
stat
es, t
hat h
ad
3 Mer
gent
Bon
dVie
wer
is a
n on
line
data
base
of b
ond
data
. The
Ele
ctro
nic
Mun
icip
al
Mar
ket A
cces
s sy
stem
, mai
ntai
ned
by th
e M
unic
ipal
Sec
uriti
es R
ulem
akin
g B
oard
, is
an
onlin
e da
taba
se o
f mun
icip
al d
iscl
osur
es a
nd d
ata
on th
e m
unic
ipal
sec
uriti
es m
arke
t
Page
3
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
impl
emen
ted
pens
ion
mod
ifica
tions
sin
ce 2
008
(see
tabl
e 1)
. Thi
s ju
dgm
enta
l sam
ple
was
sel
ecte
d to
pro
vide
exa
mpl
es o
f pla
ns
expe
rienc
ing
a ra
nge
of fi
nanc
ial c
ondi
tions
and
type
s of
stra
tegi
es
adop
ted
by th
eir s
pons
ors.
We
base
d th
is s
elec
tion
on o
ur a
naly
sis
of
NC
SL a
nnua
l rep
orts
on
pens
ion
legi
slat
ion
and
sugg
estio
ns fr
om o
ur
inte
rvie
ws
with
pen
sion
exp
erts
. We
did
not a
sses
s th
e fin
anci
al
soun
dnes
s of
indi
vidu
al p
lans
.
Tabl
e 1:
Sta
te a
nd L
ocal
Pla
ns S
elec
ted
for R
evie
w
Stat
e St
ate
plan
Lo
calit
y
Loca
l pla
n C
alifo
rnia
Cal
iforn
ia S
tate
Tea
cher
s’ R
etire
men
t Sys
tem
Cal
iforn
ia P
ublic
Em
ploy
ees’
Ret
irem
ent
Sys
tem
Son
oma
Cou
nty
Son
oma
Cou
nty
Em
ploy
ees’
Ret
irem
ent
Ass
ocia
tion
Col
orad
o
Col
orad
o P
ublic
Em
ploy
ees’
Ret
irem
ent
Ass
ocia
tion
C
ity o
f Den
ver
Den
ver E
mpl
oyee
s R
etire
men
t Pla
n
Geo
rgia
Em
ploy
ees’
Ret
irem
ent S
yste
m o
f Geo
rgia
C
obb
Cou
nty
Cob
b C
ount
y E
mpl
oyee
s’ R
etire
men
t S
yste
m P
ensi
on P
lan
Illin
ois
S
tate
Em
ploy
ees’
Ret
irem
ent S
yste
m o
f Illin
ois
Te
ache
rs’ R
etire
men
t Sys
tem
of t
he S
tate
of
Illin
ois
City
of C
hica
go
Pol
icem
en’s
Ann
uity
and
Ben
efit
Fund
of
Chi
cago
Mis
sour
i
Mis
sour
i Sta
te E
mpl
oyee
s’ R
etire
men
t Sys
tem
Mis
sour
i Dep
artm
ent o
f Tra
nspo
rtatio
n an
d H
ighw
ay P
atro
l Em
ploy
ees’
Ret
irem
ent S
yste
m
City
of S
prin
gfie
ld
Pol
ice
Offi
cers
’ and
Fire
fight
ers’
R
etire
men
t Fun
d
Pen
nsyl
vani
a
Pen
nsyl
vani
a P
ublic
Sch
ool E
mpl
oyee
s’
Ret
irem
ent S
yste
m
P
enns
ylva
nia
Sta
te E
mpl
oyee
s’ R
etire
men
t S
yste
m
City
of P
hila
delp
hia
City
of P
hila
delp
hia
Mun
icip
al P
ensi
on
Pla
n
Uta
h
Uta
h R
etire
men
t Sys
tem
s C
ity o
f Bou
ntifu
l P
ublic
Saf
ety
Ret
irem
ent S
yste
m (C
ity o
f B
ount
iful)-
par
t of t
he U
tah
Ret
irem
ent
Sys
tem
s
Virg
inia
Virg
inia
Ret
irem
ent S
yste
m
City
of N
orfo
lk
Em
ploy
ees’
Ret
irem
ent S
yste
m o
f the
City
of
Nor
folk
Sour
ce: G
AO.
Not
e: S
ee a
ppen
dix
I for
mor
e de
taile
d pr
ofile
s of
eac
h st
ate,
loca
lity,
and
pla
n.
We
cond
ucte
d th
is p
erfo
rman
ce a
udit
from
Dec
embe
r 201
0 to
Mar
ch
2012
in a
ccor
danc
e w
ith g
ener
ally
acc
epte
d go
vern
men
t aud
iting
st
anda
rds.
Tho
se s
tand
ards
requ
ire th
at w
e pl
an a
nd p
erfo
rm th
e au
dit t
o ob
tain
suf
ficie
nt, a
ppro
pria
te e
vide
nce
to p
rovi
de a
reas
onab
le b
asis
for
our f
indi
ngs
and
conc
lusi
ons
base
d on
our
aud
it ob
ject
ives
. We
belie
ve
that
the
evid
ence
obt
aine
d pr
ovid
es a
reas
onab
le b
asis
for o
ur fi
ndin
gs
and
conc
lusi
ons
base
d on
our
aud
it ob
ject
ives
.
Page
4
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Ther
e ar
e ov
er 3
,400
sta
te a
nd lo
cal p
ensi
on s
yste
ms
in th
e U
nite
d St
ates
, acc
ordi
ng to
the
mos
t rec
ent C
ensu
s Bu
reau
Sur
vey
of S
tate
and
Lo
cal P
ublic
-Em
ploy
ee R
etire
men
t Sys
tem
s.4 M
ost l
arge
pla
ns a
re s
tate
pl
ans,
and
mor
e st
ate
and
loca
l em
ploy
ees
are
cove
red
by s
tate
-ad
min
iste
red
plan
s th
an b
y lo
cally
-adm
inis
tere
d pl
ans
(abo
ut 2
4 m
illion
m
embe
rs a
nd b
enef
icia
ries
com
pare
d w
ith a
bout
3 m
illion
). H
owev
er,
ther
e ar
e m
ore
loca
l gov
ernm
ent e
mpl
oyee
s th
an s
tate
gov
ernm
ent
empl
oyee
s (a
bout
14
milli
on c
ompa
red
with
abo
ut 5
milli
on),
and
whi
le
loca
l gov
ernm
ents
som
etim
es p
artic
ipat
e in
pla
ns a
dmin
iste
red
by s
tate
s,
the
loca
l gov
ernm
ents
gen
eral
ly re
tain
resp
onsi
bilit
y fo
r con
tribu
ting
the
empl
oyer
’s s
hare
of f
undi
ng to
the
plan
s fo
r the
ir em
ploy
ees.
As
a re
sult,
lo
cal g
over
nmen
ts c
ontri
bute
mor
e to
pen
sion
pla
ns e
ach
stat
e fis
cal
year
, ove
rall,
than
do
stat
e go
vern
men
ts (s
ee fi
g. 1
).5
Figu
re 1
: Sta
te a
nd L
ocal
Gov
ernm
ent P
ensi
on C
ontr
ibut
ions
, Fis
cal Y
ear 2
009
Pens
ion
plan
s ar
e ge
nera
lly c
hara
cter
ized
as
eith
er d
efin
ed b
enef
it or
de
fined
con
tribu
tion
plan
s. U
nlik
e in
the
priv
ate
sect
or, d
efin
ed b
enef
it
4 U
.S. C
ensu
s, 2
009
Sur
vey
of S
tate
and
Loc
al P
ublic
-Em
ploy
ee R
etire
men
t Sys
tem
s (W
ashi
ngto
n, D
.C. 2
011)
. 5 Th
roug
hout
this
repo
rt, th
e te
rm “f
isca
l yea
r” re
fers
to s
tate
fisc
al y
ear (
as o
ppos
ed to
fe
dera
l fis
cal y
ear)
. Sta
te fi
scal
yea
rs v
ary,
but
mos
t run
from
Jul
y 1
to J
une
30, a
ccor
ding
to
the
Cen
sus
Bure
au.
Bac
kgro
und
Page
5
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
plan
s pr
ovid
e pr
imar
y pe
nsio
n be
nefit
s fo
r mos
t sta
te a
nd lo
cal
gove
rnm
ent w
orke
rs. A
bout
78
perc
ent o
f sta
te a
nd lo
cal e
mpl
oyee
s pa
rtici
pate
d in
def
ined
ben
efit
plan
s in
201
1, c
ompa
red
with
onl
y 18
pe
rcen
t of p
rivat
e se
ctor
em
ploy
ees.
6 In
a de
fined
ben
efit
plan
, the
am
ount
of t
he b
enef
it pa
ymen
t is
dete
rmin
ed b
y a
form
ula
(in th
e pu
blic
se
ctor
, the
form
ula
is ty
pica
lly b
ased
on
the
retir
ee’s
yea
rs o
f ser
vice
and
fin
al a
vera
ge s
alar
y, a
nd is
mos
t ofte
n pr
ovid
ed a
s a
lifet
ime
annu
ity).
How
ever
, unl
ike
priv
ate
sect
or e
mpl
oyee
s w
ith d
efin
ed b
enef
it pl
ans,
st
ate
and
loca
l gov
ernm
ent e
mpl
oyee
s ge
nera
lly c
ontri
bute
to th
eir
defin
ed b
enef
it pl
ans.
A fe
w s
tate
s of
fer d
efin
ed c
ontri
butio
n or
oth
er
type
s of
retir
emen
t pla
ns a
s th
e pr
imar
y re
tirem
ent p
lan.
7
Also
unl
ike
in th
e pr
ivat
e se
ctor
, man
y st
ate
and
loca
l em
ploy
ees
are
not
cove
red
by S
ocia
l Sec
urity
. Abo
ut 6
.4 m
illion
, or o
ver o
ne-fo
urth
, of s
tate
an
d lo
cal g
over
nmen
t em
ploy
ees
are
not e
ligib
le to
rece
ive
Soci
al
Secu
rity
bene
fits
base
d on
thei
r gov
ernm
ent e
arni
ngs
and
do n
ot p
ay
Soci
al S
ecur
ity ta
xes
on e
arni
ngs
from
thei
r gov
ernm
ent o
ccup
atio
ns.
In a
def
ined
co
ntrib
utio
n pl
an, t
he k
ey d
eter
min
ants
of t
he b
enef
it am
ount
are
the
mem
ber’s
and
em
ploy
er’s
con
tribu
tion
rate
s, a
nd th
e ra
te o
f ret
urn
achi
eved
on
the
inve
stm
ents
in a
n in
divi
dual
’s a
ccou
nt o
ver t
ime.
Al
tern
ativ
ely,
som
e st
ates
hav
e ad
opte
d hy
brid
app
roac
hes
that
com
bine
co
mpo
nent
s of
bot
h de
fined
ben
efit
and
defin
ed c
ontri
butio
n pl
ans.
8
6 U
.S. D
epar
tmen
t of L
abor
, Bur
eau
of L
abor
Sta
tistic
s, N
atio
nal C
ompe
nsat
ion
Surv
ey:
Em
ploy
ee B
enef
its in
the
Uni
ted
Sta
tes,
Mar
ch 2
011
(Was
hing
ton,
D.C
.: 20
11).
As
a re
sult,
em
ploy
er-p
rovi
ded
pens
ion
bene
fits
for n
on-c
over
ed e
mpl
oyee
s ar
e ge
nera
lly h
ighe
r tha
n fo
r em
ploy
ees
cove
red
by S
ocia
l Sec
urity
, and
em
ploy
ee a
nd e
mpl
oyer
con
tribu
tions
are
hig
her a
s w
ell.
7 As
we
have
pre
viou
sly
repo
rted,
all
stat
es a
lso
offe
r a v
olun
tary
, sup
plem
enta
l def
ined
co
ntrib
utio
n op
tion
in a
dditi
on to
thei
r prim
ary
defin
ed b
enef
it pl
an. S
ee G
AO
, Sta
te a
nd
Loca
l Gov
ernm
ent R
etire
e B
enef
its: C
urre
nt S
tatu
s of
Ben
efit
Stru
ctur
es, P
rote
ctio
ns, a
nd
Fisc
al O
utlo
ok fo
r Fun
ding
Fut
ure
Cos
ts, G
AO
-07-
1156
(Was
hing
ton,
D.C
.: S
ept.
24,
2007
).
8 42 U
.S.C
. § 4
10(a
)(7)
. His
toric
ally
, Soc
ial S
ecur
ity d
id n
ot re
quire
cov
erag
e of
go
vern
men
t em
ploy
men
t. In
195
0, C
ongr
ess
enac
ted
legi
slat
ion
allo
win
g vo
lunt
ary
cove
rage
to s
tate
and
loca
l gov
ernm
ent e
mpl
oyee
s no
t cov
ered
by
publ
ic p
ensi
on p
lans
, an
d in
195
5, e
xten
ded
volu
ntar
y co
vera
ge to
thos
e al
read
y co
vere
d by
pla
ns a
s w
ell.
Soc
ial S
ecur
ity A
ct A
men
dmen
ts o
f 195
0, P
ub. L
. No.
809
, § 1
06, 6
4 S
tat.
477
(195
0),
codi
fied
at 4
2 U
.S.C
. § 2
18(a
) &(d
); S
ocia
l Sec
urity
Am
endm
ents
of 1
956,
Pub
. L. N
o.
880,
§ 2
11 (e
), 70
Sta
t. 80
7 (1
956)
, cod
ified
at 4
2 U
.S.C
. § 2
18(d
)(6)
.
Page
6
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
The
fede
ral g
over
nmen
t has
not
impo
sed
the
sam
e fu
ndin
g an
d re
porti
ng
requ
irem
ents
on
stat
e an
d lo
cal p
ensi
ons
as it
has
on
priv
ate
sect
or
pens
ion
plan
s.9 S
tate
and
loca
l gov
ernm
ent p
ensi
on p
lans
are
not
co
vere
d by
mos
t of t
he s
ubst
antiv
e re
quire
men
ts u
nder
the
Empl
oyee
R
etire
men
t Inc
ome
Secu
rity
Act o
f 197
4 (E
RIS
A)—
requ
irem
ents
whi
ch
appl
y to
mos
t priv
ate
empl
oyer
ben
efit
plan
s. N
or a
re th
ey in
sure
d by
the
Pens
ion
Bene
fit G
uara
nty
Cor
pora
tion
as p
rivat
e pl
ans
are.
Fed
eral
law
ge
nera
lly d
oes
not r
equi
re s
tate
and
loca
l gov
ernm
ents
to p
refu
nd o
r re
port
on th
e fu
nded
sta
tus
of p
ensi
on p
lans
. How
ever
, in
orde
r for
pa
rtici
pant
s to
rece
ive
pref
eren
tial t
ax tr
eatm
ent (
that
is, f
or e
mpl
oyee
co
ntrib
utio
ns a
nd in
vest
men
t ear
ning
s to
be
tax-
defe
rred
), st
ate
and
loca
l pe
nsio
ns m
ust c
ompl
y w
ith c
erta
in re
quire
men
ts o
f the
Inte
rnal
Rev
enue
C
ode.
10
Stat
e an
d lo
cal g
over
nmen
ts a
lso
follo
w d
iffer
ent s
tand
ards
than
the
priv
ate
sect
or fo
r acc
ount
ing
and
finan
cial
repo
rting
. The
Gov
ernm
enta
l Ac
coun
ting
Stan
dard
s Bo
ard
(GAS
B), a
n in
depe
nden
t org
aniz
atio
n, h
as
been
reco
gniz
ed b
y go
vern
men
ts, t
he a
ccou
ntin
g in
dust
ry, a
nd th
e ca
pita
l m
arke
ts a
s th
e of
ficia
l sou
rce
of g
ener
ally
acc
epte
d ac
coun
ting
prin
cipl
es
(GAA
P) fo
r U.S
. sta
te a
nd lo
cal g
over
nmen
ts. G
ASB’
s st
anda
rds
are
not
fede
ral l
aws
or re
gula
tions
and
GAS
B do
es n
ot h
ave
enfo
rcem
ent
auth
ority
. How
ever
, com
plia
nce
with
its
stan
dard
s is
enf
orce
d th
roug
h la
ws
of s
ome
indi
vidu
al s
tate
s an
d th
e au
dit p
roce
ss, w
here
by a
udito
rs
rend
er o
pini
ons
on th
e fa
ir pr
esen
tatio
n of
sta
te a
nd lo
cal g
over
nmen
ts’
9 To
furth
er c
larif
y th
e di
ffere
nce
betw
een
gove
rnm
ent a
nd p
rivat
e se
ctor
pen
sion
pla
ns,
the
Inte
rnal
Rev
enue
Ser
vice
issu
ed a
n ad
vanc
e no
tice
of p
ropo
sed
rule
mak
ing
in
Nov
embe
r 201
1 re
latin
g to
the
defin
ition
of t
he te
rm “g
over
nmen
tal p
lan.
” The
gui
danc
e un
der c
onsi
dera
tion
is in
tend
ed to
est
ablis
h co
ordi
nate
d cr
iteria
for d
eter
min
ing
whe
ther
a
plan
is a
gov
ernm
enta
l pla
n an
d ad
dres
s cu
rren
t unc
erta
inty
rega
rdin
g en
titie
s w
ith
orga
niza
tiona
l, re
gula
tory
, and
con
tract
ual c
onne
ctio
ns w
ith s
tate
s or
pol
itica
l sub
divi
sion
s of
sta
tes.
Det
erm
inat
ion
of G
over
nmen
tal P
lan
Sta
tus,
76
Fed.
Reg
. 69,
172
(Nov
. 8,
2011
), to
be
codi
fied
at 2
6 C
.F.R
. § 1
.414
(d)-1
. 10
Con
tribu
tions
to q
ualif
ied
pens
ion
plan
s th
at m
eet c
erta
in re
quire
men
ts—
whe
ther
de
fined
ben
efit
or d
efin
ed c
ontri
butio
n—ar
e ge
nera
lly n
ot c
ount
ed a
s ta
xabl
e in
com
e to
em
ploy
ees
whe
n th
e co
ntrib
utio
ns a
re m
ade.
How
ever
, whe
n pe
nsio
n be
nefit
s ar
e pa
id,
amou
nts
not p
revi
ousl
y ta
xed
are
subj
ect t
o fe
dera
l and
per
haps
sta
te ta
x. T
his
also
ap
plie
s to
the
inte
rest
inco
me
such
con
tribu
tions
gen
erat
e. A
s an
alte
rnat
ive,
som
e st
ate
and
loca
l qua
lifie
d pe
nsio
n pl
ans
prov
ide
an o
ptio
n fo
r des
igna
ted
Rot
h co
ntrib
utio
ns to
R
oth
acco
unts
, and
suc
h co
ntrib
utio
ns to
Rot
h ac
coun
ts a
re m
ade
afte
r tax
atio
n. T
he
inte
rest
inco
me
earn
ed o
n su
ch c
ontri
butio
ns is
gen
eral
ly n
ot s
ubje
ct to
tax
upon
di
strib
utio
n, p
rovi
ded
that
the
requ
irem
ents
and
rest
rictio
ns a
pplic
able
to s
uch
acco
unts
un
der t
he In
tern
al R
even
ue C
ode
have
bee
n sa
tisfie
d.
Page
7
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
finan
cial
sta
tem
ents
in c
onfo
rmity
with
GAA
P. G
ASB’
s st
anda
rds
requ
ire
repo
rting
fina
ncia
l inf
orm
atio
n on
pen
sion
s, s
uch
as th
e an
nual
pen
sion
co
st, c
ontri
butio
ns a
ctua
lly m
ade
to th
e pl
an, a
nd th
e ra
tio o
f ass
ets
to
liabi
litie
s. In
add
ition
, act
uaria
l sta
ndar
ds o
f pra
ctic
e ar
e pr
omul
gate
d by
th
e Ac
tuar
ial S
tand
ards
Boa
rd. T
hese
sta
ndar
ds a
re d
esig
ned
to p
rovi
de
prac
ticin
g ac
tuar
ies
with
a b
asis
for a
ssur
ing
that
thei
r wor
k w
ill co
nfor
m
to a
ppro
pria
te p
ract
ices
and
to a
ssur
e th
e pu
blic
that
act
uarie
s ar
e pr
ofes
sion
ally
acc
ount
able
(see
app
. II f
or in
form
atio
n on
rece
ntly
pr
opos
ed c
hang
es to
GAS
B an
d Ac
tuar
ial S
tand
ards
Boa
rd s
tand
ards
).
Som
e m
unic
ipal
bon
d an
alys
ts h
ave
repo
rted
conc
erns
abo
ut s
tate
and
lo
cal g
over
nmen
ts’ c
redi
twor
thin
ess
in li
ght o
f the
rece
nt e
cono
mic
do
wnt
urn
and
cont
inui
ng p
ensi
on o
blig
atio
ns. I
n 20
08 a
nd 2
010,
re
spec
tivel
y, th
e Se
curit
ies
and
Exch
ange
Com
mis
sion
took
enf
orce
men
t ac
tions
aga
inst
the
city
of S
an D
iego
and
the
stat
e of
New
Jer
sey
for
mis
repr
esen
ting
the
finan
cial
con
ditio
n of
thei
r pen
sion
fund
s in
in
form
atio
n pr
ovid
ed to
inve
stor
s.11
Alth
ough
pen
sion
pla
ns s
uffe
red
sign
ifica
nt in
vest
men
t los
ses
from
the
rece
nt e
cono
mic
dow
ntur
n, w
hich
was
the
mos
t ser
ious
sin
ce th
e G
reat
D
epre
ssio
n, m
ost s
tate
and
loca
l gov
ernm
ent p
lans
cur
rent
ly h
ave
asse
ts
suffi
cien
t to
cove
r the
ir be
nefit
com
mitm
ents
for a
dec
ade
or m
ore.
N
ever
thel
ess,
mos
t pla
ns h
ave
expe
rienc
ed a
gro
win
g ga
p be
twee
n ac
tuar
ial a
sset
s an
d lia
bilit
ies
over
the
past
dec
ade,
mea
ning
that
hig
her
cont
ribut
ions
from
gov
ernm
ent s
pons
ors
are
need
ed to
mai
ntai
n fu
nds
on
an a
ctua
rially
bas
ed p
ath
tow
ard
sust
aina
bilit
y. In
spi
te o
f bud
get
pres
sure
s th
roug
h th
e re
cess
ion,
mos
t pla
ns c
ontin
ued
to re
ceiv
e pr
erec
essi
on c
ontri
butio
n le
vels
on
an a
ctua
rial b
asis
from
thei
r spo
nsor
s,
with
mos
t pla
ns c
ontri
butin
g th
eir f
ull a
ctua
rial l
evel
. How
ever
, the
re w
ere
som
e no
tabl
e ex
cept
ions
, and
thes
e pl
ans
cont
inue
d to
rece
ive
low
er
cont
ribut
ion
paym
ents
. Sta
te a
nd lo
cal g
over
nmen
ts e
xper
ienc
ed
decl
inin
g re
venu
es a
nd g
row
ing
expe
nses
on
othe
r fro
nts,
and
gro
win
g bu
dget
pre
ssur
es w
ill co
ntin
ue to
cha
lleng
e th
eir a
bilit
y to
pro
vide
ad
equa
te c
ontri
butio
ns to
hel
p su
stai
n th
eir p
ensi
on fu
nds.
11
GA
O is
con
duct
ing
wor
k un
der S
ectio
n 97
6 of
the
Dod
d-Fr
ank
Wal
l Stre
et R
efor
m a
nd
Con
sum
er P
rote
ctio
n A
ct, e
nact
ed in
201
0, to
stu
dy th
e in
form
atio
n th
at s
tate
and
loca
l go
vern
men
ts p
rovi
de in
vest
ors
in m
unic
ipal
sec
uriti
es, i
nclu
ding
the
adva
ntag
es a
nd
disa
dvan
tage
s of
pro
vidi
ng a
dditi
onal
fina
ncia
l inf
orm
atio
n. T
he re
port
is s
ched
uled
for
issu
ance
in s
umm
er 2
012.
Pla
ns H
ave
Suff
icie
nt
Ass
ets
to P
ay N
ear-
Term
Ben
efit
s, b
ut
Gro
win
g B
udge
t P
ress
ures
Will
C
halle
nge
The
ir
Sust
aina
bilit
y
Page
8
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
The
rece
nt e
cono
mic
dow
ntur
n re
sulte
d in
sta
te a
nd lo
cal p
ensi
on p
lans
su
fferin
g si
gnifi
cant
inve
stm
ent l
osse
s. P
ositi
ve in
vest
men
t ret
urns
are
an
impo
rtant
sou
rce
of fu
nds
for p
ensi
on p
lans
, and
hav
e hi
stor
ical
ly
gene
rate
d m
ore
than
hal
f of s
tate
and
loca
l pen
sion
fund
incr
ease
s.
How
ever
, rat
her t
han
addi
ng to
pla
ns’ a
sset
s, in
vest
men
ts lo
st m
ore
than
$6
72 b
illion
dur
ing
fisca
l yea
rs 2
008
and
2009
, bas
ed u
pon
Cen
sus
Bure
au fi
gure
s fo
r the
sec
tor (
see
fig. 2
). Si
nce
2009
, im
prov
emen
ts in
in
vest
men
t ear
ning
s ha
ve h
elpe
d pl
ans
reco
ver s
ome
of th
ese
loss
es, a
s ev
iden
ced
by m
ore
rece
nt C
ensu
s Bu
reau
dat
a on
larg
e pl
ans.
12 M
ore
impo
rtant
ly, h
owev
er, p
ublic
pen
sion
pla
ns h
ave
built
up
asse
ts o
ver
man
y ye
ars
thro
ugh
pref
undi
ng (t
hat i
s, e
mpl
oyer
and
mem
ber
cont
ribut
ions
) and
thro
ugh
the
accu
mul
atio
n of
ass
ocia
ted
inve
stm
ent
retu
rns.
13
12
Bas
ed o
n C
ensu
s qu
arte
rly d
ata
on 1
00 la
rge
retir
emen
t sys
tem
s, in
vest
men
t ret
urns
ha
ve b
een
mos
tly p
ositi
ve s
ince
the
seco
nd q
uarte
r of 2
009.
See
Cen
sus,
Fin
ance
s of
S
elec
ted
Sta
te a
nd L
ocal
Gov
ernm
ent E
mpl
oyee
Ret
irem
ent S
yste
ms.
13A
pre
fund
ed p
lan
mea
ns a
pla
n ha
s se
t asi
de fu
nds
for p
ensi
on o
blig
atio
ns m
ade
for
curr
ent e
mpl
oyee
s as
opp
osed
to p
ay-a
s-yo
u go
pla
n, w
hich
doe
s no
t set
asi
de fu
nds
to
pay
for f
utur
e ob
ligat
ions
to c
urre
nt e
mpl
oyee
s.
Des
pite
Inv
estm
ent
Loss
es,
Mos
t P
lans
Hol
d Su
ffic
ient
A
sset
s to
Pay
Ben
efit
O
blig
atio
ns f
or t
he N
ear
Fut
ure
Page
9
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Figu
re 2
: Inv
estm
ent R
etur
ns fo
r Sta
te a
nd L
ocal
Gov
ernm
ent P
ensi
on P
lans
, Fis
cal
Year
s 20
05–2
009
Asse
ssin
g th
e fin
anci
al c
ondi
tion
acro
ss a
ll pl
ans
usin
g ac
tuar
ially
de
term
ined
figu
res
(suc
h as
a p
lan’
s fu
nded
ratio
) is
chal
leng
ing,
in p
art,
beca
use
of th
e va
rious
met
hods
and
ass
umpt
ions
use
d by
thes
e pl
ans
(see
app
. II).
One
alte
rnat
ive
mea
sure
of f
inan
cial
con
ditio
n ac
ross
pe
nsio
n pl
ans,
alth
ough
not
opt
imal
whe
n as
sess
ing
the
finan
cial
hea
lth
of a
sin
gle
plan
, is
the
ratio
of f
und
asse
ts to
ann
ual e
xpen
ditu
res.
14 F
und
asse
ts re
pres
ent t
he d
olla
r am
ount
a p
lan
has
built
up,
whi
le a
nnua
l ex
pend
iture
s ul
timat
ely
dete
rmin
e ho
w q
uick
ly a
sset
s ar
e sp
ent d
own.
15
14
Exp
endi
ture
s in
clud
e bo
th a
nnua
l ben
efit
paym
ents
and
any
exp
ense
s pa
id o
ut o
f pla
n as
sets
.
Al
tern
ativ
ely,
whe
n as
sess
ing
the
finan
cial
con
ditio
n of
an
indi
vidu
al
defin
ed b
enef
it pl
an, v
ario
us a
ppro
ache
s ar
e us
ed, a
nd lo
okin
g at
mul
tiple
fa
ctor
s is
esp
ecia
lly u
sefu
l in
prov
idin
g a
mor
e co
mpl
ete
pict
ure
of a
pl
an’s
fina
ncia
l con
ditio
n. In
add
ition
to th
e le
vel o
f fun
ding
(lev
el o
f pla
n as
sets
rela
tive
to p
lan
liabi
litie
s), a
sses
smen
ts o
f a p
lan’
s fin
anci
al
15H
owev
er, u
sing
non
actu
aria
l fig
ures
is a
sim
plifi
catio
n be
caus
e it
does
not
con
side
r the
un
ique
dem
ogra
phic
pro
file—
espe
cial
ly, t
he re
lativ
e pr
opor
tions
of r
etire
d an
d ac
tive
wor
kers
in th
e pl
an’s
act
uaria
l lia
bilit
y—an
d re
late
d da
ta a
ssoc
iate
d w
ith e
ach
plan
.
Page
10
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
viab
ility
by ra
ting
agen
cies
and
oth
ers
may
take
into
con
side
ratio
n th
e in
fluen
ce o
f the
pla
n sp
onso
r, th
e pl
an’s
und
erly
ing
met
hods
and
as
sum
ptio
ns, a
nd e
fforts
to m
anag
e ris
k (s
ee ta
ble
2).
Tabl
e 2:
Und
erst
andi
ng th
e Fi
nanc
ial C
ondi
tion
of a
Pub
lic D
efin
ed B
enef
it Pl
an
Sa
mpl
e qu
estio
ns
Influ
ence
of p
lan
spon
sor
H
as th
e go
vern
men
t spo
nsor
mai
ntai
ned
its a
ctua
rial r
equi
red
cont
ribut
ions
ove
r tim
e?
W
hat i
s th
e ou
tlook
for t
he g
over
nmen
t spo
nsor
’s e
cono
my
and
budg
et (t
o af
ford
fu
ture
con
tribu
tions
)?
Is
the
plan
’s s
pons
or a
ble
to a
djus
t the
pla
n’s
desi
gn (t
hat i
s, b
enef
it le
vels
), if
need
ed?
Und
erly
ing
plan
met
hods
and
as
sum
ptio
ns
A
re u
nder
lyin
g ac
tuar
ial a
ssum
ptio
ns re
ason
able
, suc
h as
the
plan
’s d
isco
unt r
ate
or
assu
mpt
ions
for i
nfla
tion
and
sala
ry g
row
th?
D
o th
e sp
onso
r’s a
ctua
rial m
etho
ds fo
r det
erm
inin
g th
e ra
pidi
ty o
f pre
fund
ing
(act
uaria
l cos
t met
hods
for a
ssig
ning
cos
ts to
tim
e pe
riods
, am
ortiz
atio
n pe
riods
, and
an
y as
set s
moo
thin
g m
etho
ds) p
rodu
ce a
resp
onsi
ble
path
tow
ard
fund
ing
the
oblig
atio
n?
W
ho u
ltim
atel
y de
term
ines
a p
lan’
s m
etho
ds a
nd a
ssum
ptio
ns?
A
re th
ose
mak
ing
thes
e de
cisi
ons
doin
g so
with
sou
nd p
rofe
ssio
nal j
udgm
ent?
M
anag
ing
risk
Is
a p
lan’
s in
vest
men
t por
tfolio
pro
perly
pos
ition
ed to
bal
ance
risk
and
retu
rns?
Has
a ri
sk e
valu
atio
n, m
anag
emen
t, an
d re
porti
ng fr
amew
ork
been
iden
tifie
d to
hel
p m
anag
e pl
an ri
sk?
H
as th
e ris
k an
alys
is a
nd a
sset
allo
catio
n de
cisi
on ta
ken
into
acc
ount
rele
vant
risk
fa
ctor
s, s
uch
as th
e si
ze o
f the
spo
nsor
’s p
lans
rela
tive
to th
e si
ze o
f the
pla
n sp
onso
r’s ta
x ba
se, b
udge
t, or
oth
er m
easu
re o
f eco
nom
ic re
sour
ces?
Do
the
plan
’s b
enef
it fo
rmul
as o
r gov
erna
nce
proc
esse
s su
bjec
t the
pla
n sp
onso
r to
the
risk
of s
igni
fican
t inc
reas
es in
ben
efit
prom
ises
?
Sour
ce: G
AO a
naly
sis.
As
illu
stra
ted
in fi
gure
3, a
n an
alys
is o
f his
toric
al C
ensu
s Bu
reau
dat
a on
st
ate
and
loca
l gov
ernm
ent p
ensi
ons
show
s th
at th
e ra
tio o
f fun
d as
sets
to
ann
ual e
xpen
ditu
res
fell
durin
g th
e st
ock
mar
ket d
ownt
urn
rela
ted
to
the
oil c
risis
of t
he e
arly
197
0s, b
ut e
vent
ually
reco
vere
d an
d re
ache
d its
pe
ak in
200
0, d
riven
by
stro
ng in
vest
men
t res
ults
thro
ugho
ut th
e 19
90s.
Si
nce
that
pea
k, b
oth
the
mar
ket d
ownt
urn
in th
e ea
rly 2
000s
and
su
stai
ned
econ
omic
wea
knes
s be
ginn
ing
in 2
008
drov
e th
e ra
tio o
f se
ctor
-wid
e as
sets
rela
tive
to e
xpen
ditu
res
low
er. O
vera
ll, th
ese
data
sh
ow th
at th
e ag
greg
ate
ratio
of f
und
asse
ts to
ann
ual e
xpen
ditu
res,
as
of
2009
, is
low
er, b
ut in
line
with
his
toric
al n
orm
s da
ting
back
to 1
957.
Page
11
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Fig
ure
3: H
isto
rical
Tre
nds
in th
e Fi
nanc
ial C
ondi
tion
of S
tate
and
Loc
al G
over
nmen
t Pen
sion
Pla
ns—
Agg
rega
te R
atio
of
Mar
ket A
sset
s to
Tot
al E
xpen
ditu
res,
195
7–20
09
At th
e sa
me
time,
dat
a on
indi
vidu
al p
lans
indi
cate
that
this
mea
sure
can
va
ry c
onsi
dera
bly
acro
ss p
lans
. As
illust
rate
d in
figu
re 4
, dat
a on
larg
e pl
ans
for f
isca
l yea
r 200
9 sh
ow th
at th
eir f
und
asse
ts re
lativ
e to
ann
ual
expe
nditu
res
varie
d w
idel
y, w
ith ra
tios
rang
ing
from
less
than
5 to
gre
ater
th
an 2
0.
Figu
re 4
: Var
iabi
lity
in L
arge
Pla
ns’ R
atio
s of
Ass
ets
to A
nnua
l Exp
endi
ture
s, F
isca
l Ye
ar 2
009
Page
12
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
From
the
early
yea
rs o
f pre
fund
ing
of p
ensi
on p
lans
, sec
tor-w
ide
plan
co
ntrib
utio
ns o
utpa
ced
plan
exp
endi
ture
s, b
ut b
y th
e ea
rly 1
990s
, ex
pend
iture
s be
gan
outp
acin
g co
ntrib
utio
ns.16
Thi
s tre
nd w
as p
redi
ctab
le.
As p
ublic
pla
ns m
atur
ed, t
hey
bega
n to
hav
e gr
eate
r pro
porti
ons
of re
tiree
s to
act
ive
wor
kers
. As
such
, pay
men
ts to
retir
ees
incr
ease
d re
lativ
e to
pla
n co
ntrib
utio
ns a
nd, a
s a
resu
lt, in
mor
e re
cent
yea
rs, s
ecto
r-wid
e ex
pend
iture
s ha
ve o
utpa
ced
cont
ribut
ions
.17 N
ever
thel
ess,
giv
en th
e as
set
leve
ls o
f mos
t sta
te a
nd lo
cal g
over
nmen
t pla
ns a
nd th
e pa
ce o
f ex
pend
iture
s re
lativ
e to
con
tribu
tions
, mos
t pla
ns c
an b
e ex
pect
ed to
cov
er
thei
r com
mitm
ents
for t
he n
ear f
utur
e w
ith th
eir e
xist
ing
asse
ts.18
For
ex
ampl
e, e
ven
if th
ese
plan
s re
ceiv
ed n
o m
ore
cont
ribut
ions
or i
nves
tmen
t re
turn
s, m
ost l
arge
pla
ns w
ould
not
exh
aust
thei
r ass
ets
for a
dec
ade
or
long
er, s
ince
they
hol
d as
sets
at l
east
10
times
thei
r ann
ual e
xpen
ditu
res.
Whi
le s
tate
and
loca
l pen
sion
pla
ns h
ave
suffi
cien
t ass
ets
to m
eet t
heir
oblig
atio
ns in
the
near
futu
re, a
n ex
amin
atio
n of
act
uaria
lly d
eter
min
ed
fund
ed ra
tios
amon
g la
rge
plan
s sh
ows
a gr
owin
g ga
p be
twee
n th
eir
16
This
tren
d is
con
sist
ent w
ith a
ctua
rial p
ract
ices
of p
ensi
on p
lans
that
hav
e in
crea
sing
pr
opor
tions
of r
etire
es (t
hat i
s, m
atur
ing
plan
s).
17W
heth
er p
ensi
on fu
nds
grow
or d
imin
ish
depe
nds
on w
heth
er p
ositi
ve in
vest
men
t re
turn
s an
d co
ntrib
utio
ns s
tay
ahea
d of
pen
sion
fund
exp
endi
ture
s.
18A
stu
dy b
y th
e C
ente
r for
Ret
irem
ent R
esea
rch
at B
osto
n C
olle
ge a
naly
zing
pla
n as
sets
re
lativ
e to
ben
efit
paym
ents
and
pro
ject
ing
thes
e fig
ures
forw
ard,
ass
umin
g in
vest
men
t re
turn
rate
s of
6 a
nd 8
per
cent
resp
ectiv
ely,
sho
wed
that
mos
t lar
ge p
lans
hav
e en
ough
pr
efun
ded
reso
urce
s to
cov
er th
eir b
enef
it pa
ymen
ts fo
r at l
east
30
year
s, w
ith a
few
no
tabl
e ex
cept
ions
. Pla
ns in
clud
ed in
this
stu
dy w
ere
chos
en fr
om th
e la
rges
t pla
ns fr
om
each
sta
te a
s w
ell a
s a
judg
men
tal s
ampl
e of
loca
lly a
dmin
iste
red
plan
s. T
he s
tudy
was
ba
sed
upon
200
9 da
ta th
at d
id n
ot re
flect
inve
stm
ent r
etur
n ga
ins
over
201
0 or
rece
nt
stat
e an
d lo
cal g
over
nmen
t effo
rts to
incr
ease
em
ploy
ee c
ontri
butio
ns a
nd re
duce
ben
efits
fo
r new
em
ploy
ees,
See
Alic
ia H
. Mun
nell,
Jea
n-Pi
erre
Aub
ry, J
osh
Hur
witz
, and
Lau
ra
Qui
nby,
Can
Sta
te a
nd L
ocal
Pen
sion
s M
uddl
e Th
roug
h?(M
arch
201
1). A
lso,
just
prio
r to
the
econ
omic
cris
is, w
e re
porte
d th
at m
ost s
tate
and
loca
l gov
ernm
ent p
ensi
on p
lans
had
en
ough
inve
sted
reso
urce
s to
kee
p up
with
ben
efits
they
wer
e sc
hedu
led
to p
ay fo
r se
vera
l dec
ades
. See
GA
O, S
tate
and
Loc
al G
over
nmen
t Ret
iree
Ben
efits
: Cur
rent
Fu
nded
Sta
tus
of P
ensi
on a
nd H
ealth
Ben
efits
, GAO
-08-
223
(Was
hing
ton,
D.C
.: Ja
n. 2
9,
2008
). Th
ere
have
bee
n ot
her s
tudi
es p
roje
ctin
g th
e lo
ngev
ity o
f sta
te a
nd lo
cal p
ensi
on
plan
s; n
otab
ly a
stu
dy b
y Jo
shua
Rau
h, s
ee J
oshu
a D
. Rau
h, A
re S
tate
Pub
lic P
ensi
ons
Sus
tain
able
? W
hy th
e Fe
dera
l Gov
ernm
ent S
houl
d W
orry
Abo
ut S
tate
Pen
sion
Lia
bilit
ies,
(M
ay 1
5, 2
010)
. The
stu
dy p
roje
cted
som
e no
tabl
y ea
rly fu
nd e
xhau
stio
n da
tes,
incl
udin
g so
me
fund
s ru
nnin
g ou
t of m
oney
this
dec
ade.
How
ever
, the
stu
dy w
as b
ased
on
the
assu
mpt
ion
that
ben
efits
ear
ned
to d
ate
wou
ld o
nly
be fi
nanc
ed o
ut o
f cur
rent
pla
n as
sets
an
d no
t fro
m a
ny fu
ture
con
tribu
tions
. The
pro
ject
ed e
xhau
stio
n da
tes
are
thus
not
re
alis
tic e
stim
ates
of w
hen
the
fund
s m
ight
act
ually
run
out o
f mon
ey.
Pla
ns F
ace
a G
row
ing
Gap
be
twee
n A
sset
s an
d Li
abili
ties
, Lea
ding
to
Hig
her
Con
trib
utio
n R
equi
rem
ents
Page
13
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
asse
ts a
nd li
abilit
ies.
19 T
his
ratio
is im
porta
nt s
ince
, on
a pl
an-b
y-pl
an
basi
s, a
pla
n’s
fund
ed ra
tio s
how
s th
e pl
an’s
fund
ing
prog
ress
and
is p
art
of th
e ba
sis
for d
eter
min
ing
cont
ribut
ion
leve
ls n
eces
sary
for f
und
sust
aina
bilit
y.20
As
a re
sult
of re
cent
mar
ket d
eclin
es a
nd o
ther
reas
ons—
such
as
spon
sors
’ fai
lure
to k
eep
pace
with
thei
r act
uaria
lly re
quire
d co
ntrib
utio
ns a
nd b
enef
it in
crea
ses
durin
g th
e ea
rly 2
000s
—fu
nded
ratio
s ha
ve tr
ende
d lo
wer
. Dat
a co
mpi
led
on la
rge
plan
s in
dica
te th
at th
e fu
nded
ra
tios
for t
hese
pla
ns, i
n ag
greg
ate,
hav
e fa
llen
over
the
past
dec
ade
from
ov
er 1
00 p
erce
nt in
fisc
al y
ear 2
001
to 7
5.6
perc
ent i
n fis
cal y
ear 2
010.
21
19
The
fund
ed ra
tio is
cal
cula
ted
by d
ivid
ing
plan
act
uaria
l ass
ets
by p
lan
actu
aria
l lia
bilit
ies.
See
app
endi
x II
for a
dditi
onal
info
rmat
ion
on a
ctua
rial m
etho
ds a
nd m
easu
res.
(S
ee fi
g. 5
.)
20C
urre
nt G
AS
B s
tand
ards
incl
ude
a m
easu
re k
now
n as
the
annu
al re
quire
d co
ntrib
utio
n,
or A
RC
, whi
ch is
not
nec
essa
rily
the
sam
e am
ount
as
the
cont
ribut
ion
actu
ally
mad
e by
th
e em
ploy
er to
the
plan
. Con
cept
ually
, the
AR
C is
an
amou
nt th
at w
ould
cov
er th
e em
ploy
er’s
sha
re o
f cos
ts a
ttrib
utab
le to
the
curre
nt y
ear o
f em
ploy
ee s
ervi
ce (t
he “n
orm
al
cost
”), p
lus
an a
mou
nt to
elim
inat
e th
e pl
an’s
unf
unde
d lia
bilit
y ov
er a
n am
ortiz
atio
n pe
riod,
all
dete
rmin
ed in
acc
orda
nce
with
an
actu
aria
lly s
ound
fund
ing
met
hod
sele
cted
for
the
plan
(of w
hich
ther
e ar
e m
ultip
le c
hoic
es).
The
acco
untin
g co
st—
that
is, t
he c
ost f
or
the
year
reco
gniz
ed in
the
empl
oyer
’s fi
nanc
ial s
tate
men
ts—
is b
ased
on
this
AR
C. I
n th
is
sens
e, th
e ac
coun
ting
is b
ased
on
the
stat
ed fu
ndin
g m
etho
d se
lect
ed b
y th
e em
ploy
er.
But
the
empl
oyer
may
or m
ay n
ot a
ctua
lly c
ontri
bute
the
AR
C in
any
giv
en y
ear,
so th
at
the
acco
untin
g co
st m
ay d
iffer
from
the
fund
ing
cost
. See
app
endi
x II
for i
nfor
mat
ion
on
prop
osed
cha
nges
to G
AS
B s
tand
ards
. 21
Ana
lyzi
ng th
e ag
greg
ate
leve
l of l
arge
pla
ns m
inim
izes
the
diffi
culti
es in
mak
ing
com
paris
ons
acro
ss p
lans
with
act
uaria
lly b
ased
dat
a, s
ince
thes
e da
ta in
clud
e th
e sa
me
grou
p of
pla
ns o
ver t
ime.
Mos
t pla
ns k
eep
thei
r key
act
uaria
l met
hods
fairl
y st
eady
ove
r tim
e, w
ith s
ome
sign
ifica
nt e
xcep
tions
. For
exa
mpl
e, a
ny g
iven
pla
n w
ill ty
pica
lly u
se a
si
mila
r cos
t met
hod,
sm
ooth
ing,
and
am
ortiz
atio
n pe
riod
over
tim
e.
Page
14
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Figu
re 5
: Agg
rega
te F
undi
ng R
atio
: Tre
nd D
ata
for L
arge
Sta
te a
nd L
ocal
G
over
nmen
t Pen
sion
Pla
ns, F
isca
l Yea
rs 2
001–
2010
Not
e: T
he n
umbe
r of l
arge
pla
ns in
clud
ed in
the
anal
ysis
rang
ed fr
om 1
19 to
126
pla
ns.
Seve
ral f
acto
rs h
ave
cont
ribut
ed to
the
grow
ing
gap
betw
een
plan
s’
actu
aria
l ass
ets
and
liabi
litie
s. F
or e
xam
ple,
larg
e pe
nsio
n fu
nds
gene
rally
as
sum
ed in
vest
men
t ret
urns
rang
ing
from
6 to
9 p
erce
nt th
roug
hout
the
2000
s, in
clud
ing
assu
min
g re
turn
s of
app
roxi
mat
ely
8 pe
rcen
t, on
av
erag
e, in
200
9, d
espi
te th
e de
clin
es in
the
stoc
k m
arke
t dur
ing
this
tim
e.22
Pen
sion
por
tfolio
s m
aint
ain
othe
r ass
ets
besi
de e
quiti
es; h
owev
er,
gain
s in
thes
e ot
her a
sset
cla
sses
did
not
mak
e up
the
amou
nts
lost
by
nega
tive
equi
ty p
erfo
rman
ce o
ver t
his
perio
d.23
22
Pla
ns ty
pica
lly p
erfo
rm “e
xper
ienc
e st
udie
s” a
s on
e fa
ctor
to g
uide
them
in m
akin
g ad
just
men
ts to
thei
r und
erly
ing
actu
aria
l ass
umpt
ions
suc
h as
adj
ustin
g ex
pect
ed
empl
oyee
sal
ary
leve
ls o
r ret
iree
life
expe
ctan
cies
.
It is
impo
rtant
to n
ote
that
th
e pe
riod
from
200
8 to
200
9 w
as a
n ex
traor
dina
ry lo
w p
erio
d fo
r ret
urns
on
inve
stm
ents
in th
e fin
anci
al h
isto
ry o
f the
Uni
ted
Stat
es.
23S
ee N
atio
nal A
ssoc
iatio
n of
Sta
te R
etire
men
t Adm
inis
trato
rs, P
ublic
Fun
d S
urve
y S
umm
ary
of F
indi
ngs
for F
Y200
9, (N
ovem
ber 2
010)
.
Gro
win
g G
ap b
etw
een
Act
uari
al A
sset
s an
d Li
abili
ties
Page
15
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Bene
fit in
crea
ses
wer
e an
othe
r im
porta
nt re
ason
for t
he g
row
ing
gap
betw
een
asse
ts a
nd li
abilit
ies
over
the
past
dec
ade.
The
se in
crea
ses
wer
e en
acte
d ea
rly in
the
deca
de w
hen
the
fund
ed s
tatu
s of
pla
ns w
as
stro
ng. F
or e
xam
ple,
11
stat
es in
crea
sed
pens
ion
bene
fits
in 2
001
acco
rdin
g to
repo
rts fr
om th
e N
atio
nal C
onfe
renc
e of
Sta
te L
egis
latu
res.
24
Amon
g th
e si
tes
incl
uded
in o
ur re
view
, Pen
nsyl
vani
a en
acte
d le
gisl
atio
n in
200
1 th
at in
crea
sed
the
pens
ion
bene
fit m
ultip
lier f
rom
2 to
2.5
pe
rcen
t—an
incr
ease
of 2
5 pe
rcen
t.25
Low
er fu
nded
ratio
s ge
nera
lly m
ean
high
er a
nnua
l con
tribu
tion
rate
s ar
e ne
cess
ary
to h
elp
sust
ain
pens
ion
plan
s. T
hus,
as
fund
ed ra
tios
trend
ed
low
er o
ver t
he p
ast d
ecad
e, s
pons
or c
ontri
butio
n ra
tes
trend
ed h
ighe
r. Fo
r exa
mpl
e, fr
om 2
002
to 2
009,
the
med
ian
gove
rnm
ent s
pons
or
cont
ribut
ion
rate
s am
ong
larg
e pl
ans
rose
as
a pe
rcen
tage
of p
ayro
ll,
whi
le e
mpl
oyee
con
tribu
tion
leve
ls re
mai
ned
the
sam
e th
roug
h th
is s
ame
perio
d (s
ee ta
ble
3).
Thi
s hi
gher
ben
efit
form
ula
appl
ied
to b
oth
new
and
cur
rent
ly e
mpl
oyed
pen
sion
pla
n m
embe
rs (c
over
ing
stat
e em
ploy
ees
and
loca
l pub
lic s
choo
l em
ploy
ees)
. Thi
s w
as a
lso
the
case
in C
alifo
rnia
and
Col
orad
o w
here
pen
sion
ben
efit
incr
ease
s in
the
late
199
0s a
nd e
arly
in th
e 20
00s
help
ed d
rive
liabi
litie
s hi
gher
.
Tabl
e 3:
Med
ian
Con
trib
utio
n R
ates
for L
arge
Pla
ns a
s a
Perc
enta
ge o
f Pay
roll
2002
20
09
Pla
ns n
ot p
artic
ipat
ing
in S
ocia
l Sec
urity
E
mpl
oyer
10
.3%
12
.7%
Em
ploy
ee
8 8
Pla
ns p
artic
ipat
ing
in S
ocia
l Sec
urity
E
mpl
oyer
6
9.4
E
mpl
oyee
5%
5%
Sour
ce: N
atio
nal A
ssoc
iatio
n of
Sta
te R
etire
men
t Adm
inis
trato
rs.
In s
pite
of b
udge
t pre
ssur
es th
roug
h th
e 20
07-2
009
rece
ssio
n, m
ost
gove
rnm
ent s
pons
ors
of la
rge
plan
s co
ntin
ued
to c
ontri
bute
abo
ut th
e sa
me
perc
enta
ge o
f the
ir an
nual
requ
ired
cont
ribut
ion
(AR
C) l
evel
s
24
See
Ron
ald
Sne
ll, N
CS
L, P
ensi
ons
and
Ret
irem
ent P
lan
Enac
tmen
ts in
200
1 S
tate
Le
gisl
atur
es (2
001)
. 25
Soo
n af
ter P
enns
ylva
nia
incr
ease
d be
nefit
s, th
e st
ate
also
cha
nged
its
actu
aria
l m
etho
ds to
am
ortiz
e ga
ins
mor
e qu
ickl
y th
an lo
sses
, effe
ctiv
ely
supp
ress
ing
the
empl
oyer
co
ntrib
utio
n ra
te o
ver t
he s
ubse
quen
t 10-
year
per
iod,
acc
ordi
ng to
pla
n of
ficia
ls.
Act
uari
ally
Det
erm
ined
C
ontr
ibut
ion
Rat
es T
rend
ing
Hig
her
Page
16
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
dete
rmin
ed to
be
need
ed to
hel
p su
stai
n th
eir f
und
asse
ts.26
Fro
m 2
005
until
200
9, ju
st u
nder
two-
third
s of
larg
e pl
an s
pons
ors
cont
inue
d to
pay
at
leas
t 90
perc
ent o
f the
ir AR
C p
aym
ents
.27
In a
dditi
on, t
he d
istri
butio
n of
pla
n sp
onso
r con
tribu
tion
leve
ls in
201
0,
illust
rate
d in
figu
re 6
, sho
ws
that
abo
ut h
alf t
he s
pons
ors
of la
rge
plan
s co
ntrib
uted
thei
r ful
l 100
per
cent
or m
ore
of A
RC
pay
men
ts, w
hile
oth
ers
cont
ribut
ed m
uch
less
.
How
ever
, the
gap
in d
olla
rs
betw
een
wha
t lar
ge p
lans
wou
ld h
ave
rece
ived
, in
aggr
egat
e, if
they
re
ceiv
ed th
eir f
ull A
RC
pay
men
ts is
sig
nific
ant.
For e
xam
ple,
in 2
009,
la
rge
plan
s sp
onso
rs c
ontri
bute
d ap
prox
imat
ely
$63.
9 bi
llion
in a
ggre
gate
, $1
0.7
billio
n le
ss th
an if
they
had
mad
e th
eir f
ull A
RC
pay
men
ts.
Figu
re 6
: Dis
trib
utio
n of
Per
cent
age
of A
RC
Pai
d fo
r Lar
ge P
lans
, Fis
cal Y
ear 2
010
26
A g
over
nmen
t spo
nsor
may
pro
vide
a lo
wer
per
cent
age
of th
e A
RC
from
one
yea
r to
the
next
, yet
its
cont
ribut
ion,
in d
olla
rs, m
ay b
e hi
gher
than
the
prev
ious
yea
r’s a
mou
nt. T
his
is
sign
ifica
nt fr
om a
bud
getin
g pe
rspe
ctiv
e be
caus
e of
the
year
-to-y
ear i
ncre
ase.
27
This
leve
l had
falle
n si
nce
2001
, whe
n 9
of e
very
10
larg
e pl
an s
pons
ors
wer
e pa
ying
at
leas
t 90
perc
ent o
f the
ir A
RC
s.
Page
17
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Goi
ng fo
rwar
d, a
mon
g th
e ei
ght s
elec
ted
stat
es a
nd e
ight
sel
ecte
d lo
cal
juris
dict
ions
we
revi
ewed
, sev
eral
offi
cial
s to
ld u
s th
at th
ey e
xpec
ted
sign
ifica
nt in
crea
ses
in th
eir e
mpl
oyer
con
tribu
tion
rate
s as
a p
erce
ntag
e of
pay
roll.
For
inst
ance
, offi
cial
s fro
m th
e Em
ploy
ees’
Ret
irem
ent S
yste
m
of G
eorg
ia e
xpec
t the
ir co
ntrib
utio
n ra
tes
to n
early
dou
ble
over
the
next
5
year
s (fr
om 1
0.5
to 2
0 pe
rcen
t of p
ayro
ll) to
hel
p m
aint
ain
a su
stai
nabl
e pa
th fo
r the
ir de
fined
ben
efit
plan
s. O
ffici
als
from
the
Uta
h R
etire
men
t Sy
stem
s ex
pect
rate
s to
incr
ease
from
app
roxi
mat
ely
13 to
20
perc
ent o
f pa
yrol
l.
Fisc
al p
ress
ures
on
stat
e an
d lo
cal g
over
nmen
ts’ b
udge
ts a
dd to
the
chal
leng
es fa
ced
by p
lan
spon
sors
and
thei
r abi
lity
to m
ake
adeq
uate
co
ntrib
utio
ns to
thei
r pen
sion
pla
ns. T
he e
cono
mic
dow
ntur
n an
d sl
ow
reco
very
led
to b
udge
t sho
rtfal
ls in
the
stat
e an
d lo
cal s
ecto
rs b
ecau
se o
f de
clin
ing
tax
reve
nues
and
incr
ease
d sp
endi
ng o
n ec
onom
ic s
afet
y ne
t pr
ogra
ms
such
as
heal
th c
are
and
soci
al s
ervi
ces.
Acc
ordi
ng to
sur
vey
data
from
the
Nat
iona
l Ass
ocia
tion
of S
tate
Bud
get O
ffice
rs (N
ASBO
), fro
m fi
scal
yea
rs 2
009
thro
ugh
2011
, sta
tes
repo
rted
solv
ing
near
ly $
230
billio
n in
gap
s be
twee
n pr
ojec
ted
spen
ding
and
reve
nue
leve
ls.28
Loc
al
gove
rnm
ents
hav
e al
so s
trugg
led
with
thei
r bud
gets
. For
exa
mpl
e, th
e N
atio
nal L
eagu
e of
Citi
es re
porte
d th
at if
all
city
bud
gets
wer
e to
tale
d to
geth
er, t
hey
wou
ld li
kely
face
a c
ombi
ned
estim
ated
sho
rtfal
l of
anyw
here
from
$56
billi
on to
$83
billi
on fr
om 2
010
to 2
012.
29
As a
resu
lt, h
ighe
r pen
sion
con
tribu
tions
hav
e be
en n
eede
d at
the
sam
e tim
e st
ate
and
loca
l gov
ernm
ents
hav
e fa
ced
adde
d pr
essu
res
to b
alan
ce
thei
r bud
gets
. Eve
n in
nor
mal
eco
nom
ic ti
mes
, sta
te a
nd lo
cal
gove
rnm
ents
see
k co
nsis
tenc
y in
pro
gram
spe
ndin
g ar
eas,
mea
ning
that
la
rge
year
-to-y
ear i
ncre
ases
in p
ensi
on c
ontri
butio
n le
vels
can
stra
in
28
NA
SB
O, F
isca
l Sur
vey
of S
tate
s: S
prin
g 20
11 (W
ashi
ngto
n, D
.C.:
2011
). In
add
ition
, N
AS
BO
not
es th
at o
ne o
f the
cle
ares
t sig
ns o
f fis
cal s
tress
is th
e ne
ed fo
r sta
tes
to m
ake
mid
year
bud
get c
uts
to h
elp
bala
nce
thei
r bud
gets
. Sur
vey
resp
onse
s in
dica
te th
at 4
3 st
ates
mad
e su
ch re
duct
ions
in fi
scal
yea
r 200
9, a
nd 3
9 st
ates
did
so
in fi
scal
yea
r 201
0.
29A
s an
indi
catio
n of
ext
rem
e fis
cal s
tress
am
ong
loca
l gov
ernm
ents
, a s
mal
l num
ber h
ave
filed
for b
ankr
uptc
y: 4
file
d in
200
8, 1
0 in
200
9, 6
in 2
010,
and
4 a
s of
Jun
e 20
11. S
ince
19
37, w
hen
the
mun
icip
al b
ankr
uptc
y co
de w
as in
stitu
ted,
ther
e ha
ve b
een
624
filin
gs a
s of
Jun
e 30
, 201
1, a
ccor
ding
to a
n ex
pert’
s an
alys
is o
f mun
icip
al b
ankr
uptc
y fil
ings
. See
Ja
mes
E. S
piot
to, “
The
Myt
h an
d R
ealit
y of
Sta
te a
nd L
ocal
Gov
ernm
ents
Deb
t Fin
anci
ng
in th
e U
.S.A
. in
Tim
es o
f Fin
anci
al E
mer
genc
y,” (
July
25,
201
1). A
vaila
ble
on th
e U
.S.
Sec
uriti
es a
nd E
xcha
nge
Com
mis
sion
web
site
.
Pla
ns A
re V
ulne
rabl
e to
P
ress
ures
on
Stat
e an
d Lo
cal B
udge
ts
Page
18
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
budg
ets.
Sin
ce s
ome
of th
ese
gove
rnm
ents
are
sub
ject
to b
alan
ced
budg
et re
quire
men
ts, a
nnua
l pen
sion
con
tribu
tions
, whi
ch a
vera
ged
arou
nd 4
per
cent
of s
tate
and
loca
l bud
gets
in fi
scal
yea
r 200
8, m
ust
com
pete
with
oth
er p
ress
ing
need
s, e
ven
thou
gh p
ensi
on c
osts
are
ob
ligat
ions
that
gov
ernm
ents
mus
t eve
ntua
lly p
ay.30
Alth
ough
tax
reve
nues
are
slo
wly
reco
verin
g to
pre
-200
8 le
vels
, goi
ng
forw
ard,
long
-term
bud
get i
ssue
s w
ill lik
ely
cont
inue
to s
tress
sta
te a
nd
loca
l gov
ernm
ents
and
thei
r abi
lity
to fu
nd th
eir p
ensi
on p
rogr
ams.
GAO
ha
s re
porte
d th
at s
tate
and
loca
l gov
ernm
ents
face
fisc
al c
halle
nges
that
w
ill gr
ow o
ver t
ime,
and
with
cur
rent
pol
icie
s in
pla
ce, t
he s
ecto
r’s fi
scal
he
alth
is p
roje
cted
to d
eclin
e st
eadi
ly th
roug
h 20
60. 31
The
prim
ary
fact
or
driv
ing
this
dec
line
is th
e pr
ojec
ted
grow
th in
hea
lth-r
elat
ed c
osts
. For
ex
ampl
e, G
AO s
imul
atio
ns s
how
that
the
sect
or’s
hea
lth-r
elat
ed c
osts
will
be a
bout
3.7
per
cent
of g
ross
dom
estic
pro
duct
in 2
010,
but
gro
w to
8.3
pe
rcen
t by
2060
.32
The
se fi
scal
pre
ssur
es, c
ombi
ned
with
gro
win
g pe
nsio
n co
ntrib
utio
n ra
tes,
hav
e sp
urre
d m
any
stat
es a
nd lo
calit
ies
to
take
act
ion
to re
duce
pen
sion
cos
ts a
nd im
prov
e th
e fu
ture
sus
tain
abilit
y of
thei
r pla
ns.
Stat
es a
nd lo
calit
ies
have
impl
emen
ted
vario
us c
hang
es to
thei
r pen
sion
sy
stem
s si
nce
the
2008
eco
nom
ic d
ownt
urn—
chan
ges
that
, acc
ordi
ng to
of
ficia
ls, w
ere
inte
nded
to h
elp
man
age
cost
s an
d im
prov
e pl
an
30
Pro
visi
ons
in s
tate
con
stitu
tions
, sta
tute
s, o
r rec
ogni
zed
lega
l pro
tect
ions
und
er c
omm
on
law
ofte
n pr
otec
t pen
sion
s fro
m b
eing
elim
inat
ed o
r dim
inis
hed
for c
urre
nt o
r ret
ired
mem
bers
. In
a fe
w ra
re e
xcep
tions
, som
e ju
risdi
ctio
ns h
ave
avoi
ded
payi
ng p
rom
ised
be
nefit
s. T
his
can
happ
en in
cas
es o
f gov
ernm
ent b
ankr
uptc
y or
whe
n le
gisl
ativ
e ch
ange
s to
redu
ce b
enef
its a
re m
ade
retro
activ
ely
and
surv
ive
any
lega
l cha
lleng
es.
31G
AO, S
tate
and
Loc
al G
over
nmen
ts' F
isca
l Out
look
: Apr
il 20
11 U
pdat
e, G
AO
-11-
495S
P
(Was
hing
ton,
D.C
.: A
pr. 6
, 201
1).
32To
pro
vide
mor
e fle
xibi
lity
in a
ddre
ssin
g th
e gr
owin
g co
st o
f gov
ernm
ent e
mpl
oyee
’ re
tiree
hea
lth c
are,
sta
te a
nd lo
cal j
uris
dict
ions
hav
e be
gun
to p
refu
nd th
ese
cost
s. W
ith
pref
undi
ng, g
over
nmen
ts c
an re
duce
the
unfu
nded
liab
ility
repo
rted
in th
eir f
inan
cial
st
atem
ents
, tak
e ad
vant
age
of th
e co
mpo
undi
ng e
ffect
s of
inve
stm
ent r
etur
ns o
n pl
an
asse
ts, a
nd p
rovi
de g
reat
er b
enef
it st
abilit
y fo
r em
ploy
ees
and
retir
ees.
In a
dditi
on, b
y se
tting
asi
de fu
nds
for t
his
purp
ose
in a
dvan
ce, g
over
nmen
t con
tribu
tions
can
be
redu
ced
whe
n fis
cal p
ress
ures
are
gre
at. H
owev
er, p
refu
ndin
g re
tiree
hea
lth b
enef
its re
quire
s hi
gher
con
tribu
tions
in th
e sh
ort t
erm
than
pay
-as-
you-
go fi
nanc
ing
requ
ires.
For
furth
er
disc
ussi
on o
f thi
s to
pic,
see
GA
O, S
tate
and
Loc
al G
over
nmen
t Ret
iree
Hea
lth B
enef
its:
Liab
ilitie
s A
re L
arge
ly U
nfun
ded,
but
Som
e G
over
nmen
ts A
re T
akin
g Ac
tion,
GAO
-10-
61,
(Was
hing
ton,
D.C
.: N
ov. 3
0, 2
009)
.
Stat
es a
nd L
ocal
itie
s H
ave
Mad
e C
hang
es
to R
educ
e C
osts
and
Im
prov
e P
lan
Sust
aina
bilit
y
Page
19
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
sust
aina
bilit
y lo
ng te
rm (s
ee fi
g. 7
). Ba
sed
on o
ur ta
bula
tion
of s
tate
le
gisl
ativ
e ch
ange
s re
porte
d an
nual
ly b
y N
CSL
, we
foun
d th
at th
e m
ajor
ity o
f sta
tes
have
mod
ified
thei
r exi
stin
g de
fined
ben
efit
syst
ems
to
redu
ce m
embe
r ben
efits
, low
erin
g fu
ture
liab
ilitie
s. H
alf o
f sta
tes
have
in
crea
sed
requ
ired
mem
ber (
that
is, e
mpl
oyee
) con
tribu
tions
, shi
fting
co
sts
to e
mpl
oyee
s. O
nly
a fe
w s
tate
s ha
ve a
dopt
ed p
rimar
y pl
ans
with
de
fined
con
tribu
tion
com
pone
nts,
whi
ch re
duce
pla
n sp
onso
rs’
inve
stm
ent r
isk
by s
hifti
ng it
to e
mpl
oyee
s. S
ome
stat
es a
nd lo
calit
ies
have
als
o ta
ken
actio
n to
low
er p
ensi
on c
ontri
butio
ns in
the
shor
t ter
m b
y ch
angi
ng a
ctua
rial m
etho
ds, a
nd a
few
hav
e is
sued
pen
sion
bon
ds to
fin
ance
thei
r con
tribu
tions
or t
o lo
wer
thei
r cos
ts b
y re
duci
ng th
e ga
p be
twee
n pl
an a
sset
s an
d lia
bilit
ies.
In g
ener
al, w
e fo
und
that
sta
tes
and
loca
litie
s of
ten
pack
age
seve
ral o
f the
se d
iffer
ent p
ensi
on c
hang
es
toge
ther
. The
se p
acka
ged
chan
ges
can
have
var
ying
effe
cts
on e
mpl
oyer
co
ntrib
utio
ns, p
lan
sust
aina
bilit
y, a
nd e
mpl
oyee
s’ re
tirem
ent s
ecur
ity.33
Figu
re 7
: Not
able
Cha
nges
to S
tate
-Spo
nsor
ed P
ensi
on P
lans
, Jan
uary
200
8–Ju
ne 2
011
33
See
app
endi
x I f
or a
sum
mar
y of
the
rece
nt p
ensi
on c
hang
es im
plem
ente
d in
the
eigh
t st
ates
and
eig
ht lo
calit
ies
we
revi
ewed
.
Page
20
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Sinc
e th
e ec
onom
ic d
ownt
urn
in 2
008,
35
stat
es h
ave
mod
ified
at l
east
on
e st
ate-
spon
sore
d de
fined
ben
efit
syst
em to
redu
ce m
embe
r ben
efits
an
d lo
wer
futu
re p
ensi
on li
abilit
ies,
acc
ordi
ng to
our
ana
lysi
s of
NC
SL
annu
al re
ports
on
rece
nt p
ensi
on le
gisl
atio
n.34
A
djus
ting
pens
ion
bene
fit fo
rmul
a. S
ince
200
8, 2
4 st
ates
hav
e ad
just
ed th
e de
fined
ben
efit
form
ulas
to re
duce
ben
efits
by
expa
ndin
g th
e tim
e pe
riod
for c
alcu
latin
g fin
al a
vera
ge s
alar
y or
low
erin
g th
e pe
rcen
tage
of f
inal
ave
rage
sal
ary
mul
tiplie
d by
yea
rs o
f ser
vice
for
dete
rmin
ing
bene
fits.
Sta
tes
and
loca
litie
s ha
ve
used
var
ious
stra
tegi
es to
redu
ce b
enef
its fo
r pla
n pa
rtici
pant
s, s
uch
as
adju
stin
g th
e be
nefit
form
ula,
rais
ing
elig
ibilit
y re
quire
men
ts, a
nd li
miti
ng
post
retir
emen
t ben
efit
incr
ease
s:
35
R
aisi
ng e
ligib
ility
requ
irem
ents
. Sin
ce 2
008,
29
stat
es h
ave
incr
ease
d re
tirem
ent a
ge o
r ves
ting
requ
irem
ents
for p
lan
parti
cipa
nts.
For
exa
mpl
e, C
alifo
rnia
rece
ntly
low
ered
the
bene
fit m
ultip
lier f
or n
ew s
tate
saf
ety
empl
oyee
s, m
any
of w
hom
are
no
t cov
ered
by
Soci
al S
ecur
ity, f
rom
2.5
to 2
per
cent
. In
addi
tion,
two
loca
litie
s w
e re
view
ed m
ade
sim
ilar c
hang
es. F
or e
xam
ple,
Den
ver,
Col
orad
o, in
crea
sed
the
perio
d us
ed fo
r cal
cula
ting
final
ave
rage
sa
lary
from
3 to
5 y
ears
for n
ew m
embe
rs o
f the
Den
ver E
mpl
oyee
s R
etire
men
t Pla
n.
36
Li
miti
ng p
ostr
etire
men
t ben
efits
. Sin
ce 2
008,
18
stat
es h
ave
redu
ced
or e
limin
ated
ann
ual p
ostre
tirem
ent c
ost-o
f-liv
ing
adju
stm
ents
(CO
LA).
Som
e st
ates
hav
e ev
en a
pplie
d th
ese
chan
ges
For
exa
mpl
e, M
isso
uri r
aise
d th
e no
rmal
retir
emen
t age
fo
r gen
eral
em
ploy
ees
from
62
to 6
7 an
d le
ngth
ened
the
vest
ing
perio
d fro
m 5
to 1
0 ye
ars
for n
ew m
embe
rs o
f the
Sta
te E
mpl
oyee
s’
Ret
irem
ent S
yste
m a
nd th
e M
isso
uri D
epar
tmen
t of T
rans
porta
tion
and
Hig
hway
Pat
rol E
mpl
oyee
s’ R
etire
men
t Sys
tem
. In
addi
tion,
two
loca
litie
s w
e re
view
ed m
ade
sim
ilar c
hang
es. F
or e
xam
ple,
the
norm
al
retir
emen
t age
for n
ew m
embe
rs o
f the
Pol
icem
en’s
Ann
uity
and
Be
nefit
Fun
d of
Chi
cago
was
rais
ed fr
om 5
0 to
55
year
s.
34
This
ana
lysi
s is
bas
ed o
n ou
r rev
iew
of a
nnua
l NC
SL
repo
rts fo
r the
yea
rs 2
008-
2010
an
d a
2011
repo
rt th
at c
over
ed c
hang
es a
dopt
ed b
y Ju
ne o
f tha
t yea
r. 35
Exp
andi
ng th
e tim
e pe
riod
for c
alcu
latin
g fin
al a
vera
ge s
alar
ies
gene
rally
redu
ces
pens
ion
bene
fits
by a
vera
ging
in lo
wer
em
ploy
ee s
alar
ies.
36
The
vest
ing
perio
d is
the
empl
oyee
s’ re
quire
d ye
ars
of s
ervi
ce b
efor
e th
ey e
arn
the
right
to
futu
re p
ensi
on b
enef
its.
Maj
orit
y of
Sta
tes
Hav
e R
educ
ed B
enef
its
sinc
e 20
08, R
educ
ing
Fut
ure
Liab
iliti
es
Page
21
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
to c
urre
nt re
tiree
s. In
the
case
of C
olor
ado,
the
stat
e re
cent
ly re
duce
d po
stre
tirem
ent C
OLA
s fo
r fut
ure,
cur
rent
, and
retir
ed m
embe
rs.
Acco
rdin
g to
pla
n do
cum
ents
, mos
t pla
n m
embe
rs, w
ho a
re n
ot
cove
red
by S
ocia
l Sec
urity
, had
pre
viou
sly
been
gua
rant
eed
an
annu
al p
ostre
tirem
ent C
OLA
of 3
.5 p
erce
nt, b
ut th
e re
cent
legi
slat
ion
elim
inat
ed th
e C
OLA
for 2
010
and
capp
ed fu
ture
CO
LAs
at 2
pe
rcen
t.37
The
maj
ority
of t
hese
ben
efit
chan
ges
have
bee
n lim
ited
to n
ew
empl
oyee
s, s
low
ing
the
futu
re g
row
th o
f pen
sion
liab
ilitie
s, b
ut u
sual
ly n
ot
sign
ifica
ntly
redu
cing
sys
tem
s’ e
xist
ing
unfu
nded
liab
ilitie
s, w
hich
are
ba
sed
on th
e be
nefit
s pr
omis
ed to
cur
rent
em
ploy
ees
and
retir
ees.
38 A
s w
e ha
ve re
porte
d pr
evio
usly
, pro
visi
ons
in s
tate
con
stitu
tions
, sta
tute
s, o
r re
cogn
ized
lega
l pro
tect
ions
und
er c
omm
on la
w o
ften
prot
ect p
ensi
ons
from
bei
ng e
limin
ated
or d
imin
ishe
d fo
r cur
rent
or r
etire
d m
embe
rs.39
Th
us, s
ome
stat
e an
d lo
cal g
over
nmen
ts c
hang
e be
nefit
s by
cre
atin
g a
new
tier
or p
lan
that
app
lies
to n
ew e
mpl
oyee
s hi
red
only
afte
r the
dat
e of
th
e ch
ange
, and
som
etim
es a
lso
to n
ewer
em
ploy
ees
who
are
not
yet
ve
sted
. It t
akes
tim
e fo
r the
se n
ew e
mpl
oyee
s w
ith le
ss e
xpen
sive
pe
nsio
n be
nefit
s to
bec
ome
a si
gnifi
cant
por
tion
of th
e w
orkf
orce
, de
layi
ng fo
r a d
ecad
e or
mor
e an
y si
gnifi
cant
redu
ctio
ns in
pla
n lia
bilit
ies.
40
37
Prio
r to
the
2010
legi
slat
ion,
the
amou
nt o
f pos
tretir
emen
t CO
LAs
depe
nded
on
whe
n em
ploy
ees
join
ed th
e sy
stem
, acc
ordi
ng to
pla
n do
cum
ents
. The
CO
LA a
mou
nt w
as 3
.5
perc
ent f
or m
embe
rs w
ho jo
ined
on
or b
efor
e Ju
ne 3
0, 2
005,
and
the
low
er o
f 3 p
erce
nt o
r th
e C
onsu
mer
Pric
e In
dex
for U
rban
Wag
e E
arne
rs a
nd C
leric
al W
orke
rs (C
PI-W
) for
m
embe
rs w
ho jo
ined
on
or a
fter J
uly
1, 2
005.
The
201
0 le
gisl
atio
n lo
wer
ed th
e C
OLA
for
all f
utur
e, c
urre
nt, a
nd re
tired
mem
bers
. For
mem
bers
who
join
ed b
efor
e Ja
nuar
y 1,
200
7,
the
CO
LA w
as re
duce
d to
2 p
erce
nt u
nles
s th
e pl
an h
as a
neg
ativ
e in
vest
men
t ret
urn
year
, in
whi
ch c
ase
the
CO
LA w
ill b
e th
e le
sser
of 2
per
cent
or t
he C
PI-W
for t
he n
ext
thre
e ye
ars.
A s
epar
ate
rese
rve
fund
was
cre
ated
for m
embe
rs w
ho jo
ined
on
or a
fter
Janu
ary
1, 2
007.
For
thes
e m
embe
rs, t
he C
OLA
will
be
the
less
er o
f 2 p
erce
nt o
r the
CP
I-W
as
long
as
paym
ents
do
not e
xcee
d 10
per
cent
of t
he C
OLA
rese
rve
fund
. The
le
gisl
atio
n al
so a
llow
s fo
r the
max
imum
CO
LA to
be
incr
ease
d w
hen
the
plan
’s o
vera
ll fu
nded
sta
tus
is a
t or a
bove
103
per
cent
and
low
ered
if it
sub
sequ
ently
dro
ps b
elow
90
perc
ent.
Ove
r the
long
term
, how
ever
, the
se b
enef
it re
duct
ions
can
38A
s di
scus
sed
late
r, Ill
inoi
s to
ok th
e m
ore
unus
ual s
tep
of ta
king
adv
ance
cre
dit f
or
bene
fit re
duct
ions
that
app
ly o
nly
to n
ew e
mpl
oyee
s.
39G
AO, S
tate
and
Loc
al G
over
nmen
t Ret
iree
Ben
efits
: Cur
rent
Sta
tus
of B
enef
it S
truct
ures
, Pro
tect
ions
, and
Fis
cal O
utlo
ok fo
r Fun
ding
Fut
ure
Cos
ts, G
AO
-07-
1156
(W
ashi
ngto
n, D
.C.:
Sep
t. 24
, 200
7).
40E
mpl
oyer
s w
ith h
ighe
r rat
es o
f em
ploy
ee tu
rnov
er w
ill re
cogn
ize
savi
ngs
from
pen
sion
be
nefit
redu
ctio
ns s
oone
r tha
n th
ose
empl
oyer
s w
ith le
ss e
mpl
oyee
turn
over
.
Page
22
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
redu
ce p
ensi
on li
abilit
ies
and
cons
eque
ntly
low
er a
ctua
rially
requ
ired
spon
sor c
ontri
butio
ns. F
rom
the
empl
oyee
per
spec
tive,
thes
e ch
ange
s ca
n m
ean
that
thos
e in
the
new
tier
or p
lan
will
real
ize
low
er fu
ture
be
nefit
s th
an th
eir c
owor
kers
who
con
tinue
to p
artic
ipat
e in
the
old
plan
. Th
is c
ould
affe
ct e
mpl
oyee
recr
uitm
ent a
nd re
tent
ion
over
the
long
term
, bu
t som
e pe
nsio
n of
ficia
ls w
e sp
oke
with
exp
ecte
d an
y sh
ort-t
erm
im
pact
s to
be
min
imal
.
Amon
g th
e pe
nsio
n pl
ans
incl
uded
in o
ur re
view
, we
foun
d th
at s
ix s
tate
s an
d tw
o lo
calit
ies
had
redu
ced
the
bene
fits
in s
ome
of th
eir l
arge
st
defin
ed b
enef
it pl
ans.
For
exa
mpl
e, in
201
1, D
enve
r, C
olor
ado,
redu
ced
retir
emen
t ben
efits
for n
ew m
embe
rs o
f the
Den
ver E
mpl
oyee
s R
etire
men
t Pla
n hi
red
afte
r Jul
y 1,
201
1. D
enve
r rev
erse
d pr
evio
us
bene
fit e
nhan
cem
ents
ena
cted
ove
r prio
r dec
ades
by
incr
easi
ng th
e pe
riod
used
for c
alcu
latin
g fin
al a
vera
ge s
alar
y (th
e ba
sis
for b
enef
it ca
lcul
atio
ns) a
nd ra
isin
g th
e m
inim
um re
tirem
ent a
ge fr
om 5
5 to
60,
am
ong
othe
r cha
nges
. Ove
r the
nex
t 30
year
s, th
ese
chan
ges
are
expe
cted
to re
duce
the
city
’s p
ensi
on c
ontri
butio
ns b
y 1.
65 p
erce
nt o
f pa
yrol
l. Ac
cord
ing
to p
lan
docu
men
ts, t
he c
hang
es e
nact
ed a
re e
xpec
ted
to re
duce
pen
sion
ben
efits
for n
ew e
mpl
oyee
s an
d w
ill re
quire
som
e m
embe
rs to
wor
k lo
nger
to re
ceiv
e fu
ll pe
nsio
n be
nefit
s. N
ever
thel
ess,
ci
ty o
ffici
als
do n
ot e
xpec
t any
of t
he re
cent
cha
nges
to s
igni
fican
tly a
ffect
em
ploy
ee re
crui
tmen
t and
rete
ntio
n.
Twen
ty-fi
ve s
tate
s ha
ve ta
ken
actio
n si
nce
2008
to in
crea
se m
embe
r co
ntrib
utio
ns, s
hifti
ng p
ensi
on c
osts
to e
mpl
oyee
s, a
ccor
ding
to N
CSL
re
ports
. Sta
tes
gene
rally
hav
e m
ore
leew
ay to
adj
ust m
embe
r con
tribu
tion
rate
s as
com
pare
d w
ith p
ensi
on b
enef
its fo
r exi
stin
g m
embe
rs. A
s a
resu
lt, m
ore
stat
es h
ave
incr
ease
d co
ntrib
utio
ns fo
r som
e ac
tive
empl
oyee
s ra
ther
than
lim
iting
the
incr
ease
s to
futu
re e
mpl
oyee
s. S
ome
stat
es a
re a
lso
requ
iring
mem
bers
to c
ontri
bute
to th
eir p
ensi
ons
for t
he
first
tim
e. A
mon
g th
e st
ates
we
revi
ewed
, Virg
inia
and
Mis
sour
i rec
ently
re
quire
d so
me
new
pla
n m
embe
rs to
con
tribu
te to
the
retir
emen
t pla
n (5
pe
rcen
t in
Virg
inia
and
4 p
erce
nt in
Mis
sour
i), w
here
as m
embe
rs d
id n
ot
prev
ious
ly c
ontri
bute
.
Incr
ease
s in
mem
ber c
ontri
butio
ns re
duce
the
actu
aria
lly re
quire
d am
ount
s pl
an s
pons
ors
need
to c
ontri
bute
to th
eir p
ensi
on s
yste
ms.
As
a re
sult,
thes
e ch
ange
s of
ten
do n
ot a
ffect
the
amou
nt o
f rev
enue
flow
ing
into
pen
sion
sys
tem
s, b
ut ra
ther
repr
esen
t a s
hifti
ng o
f pen
sion
cos
t fro
m
empl
oyer
s to
pla
n m
embe
rs. M
embe
r con
tribu
tions
are
a re
lativ
ely
stab
le
sour
ce o
f pen
sion
reve
nue,
sin
ce th
ey a
re le
ss s
usce
ptib
le to
mar
ket
Hal
f th
e St
ates
Hav
e R
aise
d M
embe
r C
ontr
ibut
ions
, Shi
ftin
g C
osts
to
Pla
n M
embe
rs
Page
23
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
cond
ition
s th
an in
vest
men
t ret
urns
, and
less
sus
cept
ible
to b
udge
tary
and
po
litic
al p
ress
ures
than
em
ploy
er c
ontri
butio
ns. H
owev
er, m
embe
r co
ntrib
utio
ns a
re s
usce
ptib
le to
dec
lines
in th
e si
ze o
f the
wor
kfor
ce a
nd
are
ofte
n re
fund
ed to
em
ploy
ees
if th
ey s
epar
ate
from
thei
r em
ploy
er
befo
re b
ecom
ing
elig
ible
to re
ceiv
e be
nefit
s.
Amon
g th
e ju
risdi
ctio
ns in
clud
ed in
our
revi
ew, w
e fo
und
that
four
sta
tes
and
one
loca
lity
had
incr
ease
d th
e m
embe
r con
tribu
tions
in s
ome
of th
eir
larg
est d
efin
ed b
enef
it pl
ans.
For
exa
mpl
e, in
the
case
of N
orfo
lk,
Virg
inia
, the
city
beg
an re
quiri
ng n
ew m
embe
rs to
con
tribu
te 5
per
cent
to
the
Empl
oyee
s’ R
etire
men
t Sys
tem
in 2
010,
whe
reas
cur
rent
mem
bers
do
not
con
tribu
te. A
s a
resu
lt of
this
cha
nge,
the
city
’s e
mpl
oyer
co
ntrib
utio
ns w
ill de
clin
e as
mor
e co
ntrib
utin
g m
embe
rs jo
in th
e sy
stem
. C
ity o
ffici
als
said
that
new
em
ploy
ees
had
alre
ady
cont
ribut
ed o
ver
$140
,000
to th
e sy
stem
in th
e fir
st y
ear.
This
incr
ease
in m
embe
r co
ntrib
utio
ns w
ill re
duce
em
ploy
ee c
ompe
nsat
ion
and
coul
d af
fect
re
crui
tmen
t and
rete
ntio
n, p
artic
ular
ly s
ince
the
chan
ge w
ill be
im
med
iate
ly re
flect
ed in
low
er p
aych
ecks
. How
ever
, city
offi
cial
s di
d no
t ex
pect
the
chan
ges
to h
ave
a si
gnifi
cant
impa
ct o
n em
ploy
ee re
crui
tmen
t an
d re
tent
ion,
sin
ce th
e Vi
rgin
ia R
etire
men
t Sys
tem
had
rece
ntly
im
plem
ente
d si
mila
r cha
nges
for s
tate
em
ploy
ees.
Alth
ough
a m
ajor
ity o
f sta
tes
have
con
tinue
d to
use
trad
ition
al d
efin
ed
bene
fit p
lans
as
thei
r prim
ary
pens
ion
syst
em, o
ur a
naly
sis
of N
CSL
an
nual
repo
rts o
n re
cent
pen
sion
legi
slat
ion
foun
d th
at, s
ince
200
8, th
ree
stat
es—
Geo
rgia
, Mic
higa
n,41
and
Uta
h—ha
ve im
plem
ente
d hy
brid
ap
proa
ches
as
prim
ary
plan
s fo
r lar
ge g
roup
s of
em
ploy
ees,
42
41
Mic
higa
n ha
s op
erat
ed a
def
ined
con
tribu
tion
plan
for g
ener
al e
mpl
oyee
s si
nce
1997
, bu
t ado
pted
a n
ew h
ybrid
sys
tem
for p
ublic
sch
ool e
mpl
oyee
s in
201
0.
shi
fting
42P
rior t
o 20
08, t
hree
sta
tes,
Ala
ska,
Indi
ana,
and
Ore
gon,
and
the
Dis
trict
of C
olum
bia
had
alre
ady
adop
ted
defin
ed c
ontri
butio
n or
hyb
rid a
ppro
ache
s as
thei
r prim
ary
plan
s fo
r ge
nera
l pub
lic e
mpl
oyee
s. In
dian
a ha
s op
erat
ed a
hyb
rid s
yste
m s
ince
199
7, b
ut a
dopt
ed
a de
fined
con
tribu
tion
optio
n fo
r new
em
ploy
ees
in 2
011.
In a
dditi
on, N
ebra
ska
mai
ntai
ns
a ca
sh b
alan
ce d
efin
ed b
enef
it pl
an a
s its
prim
ary
plan
. Alth
ough
stil
l pro
vidi
ng d
efin
ed
bene
fit p
lans
as
thei
r prim
ary
plan
s fo
r gen
eral
sta
te e
mpl
oyee
s, s
ome
stat
es a
lso
offe
r de
fined
con
tribu
tion
plan
s or
hyb
rid a
ppro
ache
s as
opt
iona
l alte
rnat
ives
to th
eir p
rimar
y pl
ans.
The
se s
tate
s in
clud
e C
olor
ado,
Flo
rida,
Mon
tana
, Ohi
o, S
outh
Car
olin
a, a
nd
Was
hing
ton.
Thr
ee S
tate
s R
ecen
tly
Ado
pted
Hyb
rid
App
roac
hes,
Red
ucin
g R
isk
for
Pla
n Sp
onso
rs
Page
24
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
som
e in
vest
men
t ris
k to
new
em
ploy
ees.
43 T
wo
of th
e ei
ght l
ocal
ities
we
revi
ewed
hav
e al
so s
witc
hed
to h
ybrid
app
roac
hes
sinc
e 20
08: C
obb
Cou
nty,
Geo
rgia
, and
Bou
ntifu
l, U
tah
(whi
ch p
artic
ipat
es in
Uta
h’s
stat
e-ad
min
iste
red
retir
emen
t sys
tem
). U
nlik
e in
a d
efin
ed b
enef
it pl
an, w
hich
pr
ovid
es b
enef
its b
ased
on
a se
t for
mul
a,44
Def
ined
con
tribu
tion
and
hybr
id a
ppro
ache
s re
duce
the
impa
ct o
f mar
ket
vola
tility
on
plan
fund
ing
and
empl
oyer
con
tribu
tions
, but
are
risk
ier f
or
plan
mem
bers
. Whe
reas
und
er a
def
ined
ben
efit
syst
em, e
mpl
oyer
co
ntrib
utio
ns g
ener
ally
rise
and
fall
depe
ndin
g in
par
t on
inve
stm
ent
retu
rns,
pla
n sp
onso
rs o
f a d
efin
ed c
ontri
butio
n sy
stem
con
tribu
te a
set
am
ount
rega
rdle
ss o
f inv
estm
ent r
etur
ns. T
his
redu
ces
the
risk
faci
ng th
e pe
nsio
n sy
stem
as
wel
l as
the
stat
e or
loca
lity
spon
sorin
g th
e pl
an.
How
ever
, sw
itchi
ng to
a d
efin
ed c
ontri
butio
n pl
an c
an in
volv
e ad
ditio
nal
shor
t-ter
m c
osts
for p
lan
spon
sors
, sin
ce c
ontri
butio
ns fr
om n
ew
empl
oyee
s go
tow
ard
thei
r ow
n pr
ivat
e ac
coun
ts ra
ther
than
pay
ing
off
exis
ting
unfu
nded
liab
ilitie
s of
the
defin
ed b
enef
it pl
an o
nce
it is
clo
sed
to
new
em
ploy
ees.
Fro
m th
e m
embe
r’s p
ersp
ectiv
e, b
uild
ing
up re
tirem
ent
savi
ngs
in d
efin
ed c
ontri
butio
n pl
ans
rest
s on
fact
ors
that
are
, to
som
e de
gree
, out
side
of t
he c
ontro
l of t
he in
divi
dual
wor
ker.
Mos
t not
able
am
ong
thes
e is
the
mar
ket r
etur
n on
pla
n as
sets
, whi
ch, a
mon
g ot
her
fact
ors,
det
erm
ines
futu
re re
tirem
ent b
enef
its. O
n th
e on
e ha
nd, t
his
expo
sure
to m
arke
t ris
k in
crea
ses
mem
bers
’ fin
anci
al u
ncer
tain
ty, s
ince
re
tirem
ent b
enef
its ri
se a
nd fa
ll ba
sed
on in
vest
men
t ret
urns
. On
the
othe
r ha
nd, d
efin
ed c
ontri
butio
n pl
ans
are
ofte
n vi
ewed
as
mor
e po
rtabl
e th
an
defin
ed b
enef
it pl
ans,
as
empl
oyee
s ow
n th
eir a
ccou
nts
indi
vidu
ally
and
ca
n ge
nera
lly ta
ke th
eir b
alan
ces
with
them
—in
clud
ing
both
mem
ber a
nd
in a
def
ined
con
tribu
tion
com
pone
nt o
f a h
ybrid
app
roac
h, th
e ke
y de
term
inan
ts o
f the
ben
efit
amou
nt a
re th
e em
ploy
ee’s
and
em
ploy
er’s
con
tribu
tion
rate
s, a
nd th
e ra
te o
f ret
urn
achi
eved
on
the
amou
nts
cont
ribut
ed to
an
indi
vidu
al’s
ac
coun
t ove
r tim
e.
43
In th
is re
port
we
use
the
term
“hyb
rid a
ppro
ach”
to re
fer t
o pu
blic
pen
sion
sys
tem
s th
at
com
bine
def
ined
ben
efit
and
defin
ed c
ontri
butio
n co
mpo
nent
s. In
the
priv
ate
sect
or, a
hy
brid
pla
n m
ost o
ften
refe
rs to
a c
ash
bala
nce
plan
, whi
ch is
lega
lly a
def
ined
ben
efit
plan
that
exp
ress
es b
enef
its a
s a
hypo
thet
ical
indi
vidu
al a
ccou
nt b
alan
ce th
at is
bas
ed o
n pa
y cr
edits
(per
cent
age
of s
alar
y or
com
pens
atio
n) a
nd in
tere
st c
redi
ts. F
or a
dditi
onal
in
form
atio
n on
priv
ate
sect
or c
ash
bala
nce
plan
s, s
ee G
AO
, Priv
ate
Pen
sion
s: In
form
atio
n on
Cas
h B
alan
ce P
ensi
on P
lans
, GA
O-0
6-42
(Was
hing
ton,
D.C
.: N
ov. 3
, 200
5).
44In
a p
ublic
sec
tor d
efin
ed b
enef
it pl
an, t
he a
mou
nt o
f the
ben
efit
is d
eter
min
ed b
y a
form
ula
typi
cally
bas
ed o
n th
e re
tiree
’s y
ears
of s
ervi
ce a
nd fi
nal a
vera
ge s
alar
y.
Page
25
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
empl
oyer
con
tribu
tions
—w
hen
they
leav
e go
vern
men
t em
ploy
men
t, as
lo
ng a
s th
ey a
re v
este
d. In
con
trast
, em
ploy
ees
in d
efin
ed b
enef
it pl
ans
can
gene
rally
take
thei
r mem
ber c
ontri
butio
ns, i
f any
, with
them
if th
ey
leav
e go
vern
men
t em
ploy
men
t, bu
t not
the
empl
oyer
’s c
ontri
butio
ns. 45
In th
e ca
se o
f Geo
rgia
, the
sta
te re
plac
ed it
s de
fined
ben
efit
plan
with
a
hybr
id a
ppro
ach
for a
ll ne
w e
mpl
oyee
s hi
red
afte
r Jan
uary
1, 2
009.
Thi
s ne
w h
ybrid
app
roac
h is
com
pose
d of
a s
mal
ler d
efin
ed b
enef
it re
lativ
e to
th
e pr
evio
us p
lan
(1 p
erce
nt o
f hig
hest
ave
rage
sal
ary
mul
tiplie
d by
yea
rs
of s
ervi
ce c
ompa
red
with
2 p
erce
nt p
revi
ousl
y) a
nd a
utom
atic
enr
ollm
ent
in th
e st
ate’
s 40
1(k)
pla
n w
ith th
e st
ate
mat
chin
g up
to 3
per
cent
of t
he
empl
oyee
’s c
ontri
butio
ns.
46
45
Onc
e an
em
ploy
ee is
ves
ted,
bot
h de
fined
con
tribu
tion
and
defin
ed b
enef
it pl
ans
coul
d be
rega
rded
as
“por
tabl
e.” I
n th
e ca
se o
f a d
efin
ed b
enef
it pl
an, t
he d
epar
ting
empl
oyee
ta
kes
with
him
or h
er th
e rig
ht to
a fu
ture
ben
efit,
whe
reve
r he
or s
he g
oes.
How
ever
, the
be
nefit
form
ulas
of d
efin
ed b
enef
it pl
ans
are
ofte
n w
eigh
ted
tow
ard
empl
oyee
s th
at re
tire
afte
r man
y ye
ars
of s
ervi
ce w
ith a
sin
gle
empl
oyer
, so
wor
kers
cha
ngin
g jo
bs m
ay in
cur
futu
re li
fetim
e be
nefit
loss
es. T
he p
erce
ptio
n of
def
ined
con
tribu
tion
plan
s as
mor
e po
rtabl
e re
flect
s th
e gr
eate
r liq
uidi
ty a
nd e
mpl
oyee
dis
cret
ion
over
the
man
agem
ent o
f th
ese
bene
fits,
suc
h as
the
abilit
y to
cas
h th
em o
ut u
pon
leav
ing
empl
oym
ent,
or to
roll
them
ove
r int
o an
othe
r pla
n or
an
indi
vidu
al re
tirem
ent a
ccou
nt. F
or a
dditi
onal
info
rmat
ion,
se
e G
AO, P
rivat
e P
ensi
ons:
Alte
rnat
ive
Appr
oach
es C
ould
Add
ress
Ret
irem
ent R
isks
Fa
ced
by W
orke
rs b
ut P
ose
Trad
e-of
fs,
Pla
n of
ficia
ls s
aid
it is
diff
icul
t to
calc
ulat
e ho
w
muc
h th
e st
ate
will
save
as
a re
sult
of th
e ch
ange
, but
it is
exp
ecte
d to
be
finan
cial
ly a
dvan
tage
ous
for t
he s
tate
in th
e lo
ng ru
n. In
201
1, e
mpl
oyer
co
ntrib
utio
ns fo
r the
def
ined
ben
efit
porti
on o
f the
hyb
rid a
ppro
ach
wer
e 6.
54 p
erce
nt o
f pay
roll,
com
pare
d w
ith 1
0.41
per
cent
for e
mpl
oyee
s co
vere
d un
der t
he o
ld p
lan.
How
ever
, sin
ce th
e ch
ange
s ar
e lim
ited
to
new
em
ploy
ees,
it w
ill ta
ke ti
me
for t
he s
tate
to re
aliz
e si
gnifi
cant
sav
ings
fro
m th
e ch
ange
. Acc
ordi
ng to
pla
n of
ficia
ls, o
ne o
f the
mot
ivat
ing
fact
ors
behi
nd th
e sw
itch
to th
e hy
brid
app
roac
h w
as th
e de
sire
to a
ttrac
t new
em
ploy
ees
to th
e st
ate
by p
rovi
ding
them
with
mor
e po
rtabl
e re
tirem
ent
bene
fits
that
mirr
ored
thos
e in
the
priv
ate
sect
or. H
owev
er, a
s is
com
mon
w
ith d
efin
ed c
ontri
butio
n pl
ans
in th
e pr
ivat
e se
ctor
, som
e pa
rtici
pant
s in
th
e hy
brid
app
roac
h m
ay n
ot b
e sa
ving
eno
ugh
for a
sec
ure
retir
emen
t. As
of D
ecem
ber 3
1, 2
011,
80
perc
ent o
f em
ploy
ees
parti
cipa
ting
in th
e
GA
O-0
9-64
2 (W
ashi
ngto
n D
.C.:
July
24,
200
9).
46A
401
(k) p
lan
is a
type
of d
efin
ed c
ontri
butio
n pl
an th
at p
erm
its e
mpl
oyee
s to
def
er a
po
rtion
of t
heir
pay
to a
qua
lifie
d ta
x-de
ferr
ed p
lan.
Sta
te a
nd lo
cal g
over
nmen
t def
ined
co
ntrib
utio
n pl
ans
are
typi
cally
457
(b) p
lans
. The
Tax
Ref
orm
Act
of 1
986
proh
ibite
d st
ate
and
loca
l gov
ernm
ents
from
est
ablis
hing
any
new
401
(k) p
lans
afte
r May
6, 1
986,
but
ex
istin
g pl
ans
wer
e al
low
ed to
con
tinue
. Pub
. L. N
o. 9
9-51
4, §
111
6(b)
(3),
100
Sta
t. 20
85,
2455
.
Page
26
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
401(
k) c
ompo
nent
of t
he h
ybrid
app
roac
h w
ere
cont
ribut
ing
only
the
defa
ult 1
per
cent
, acc
ordi
ng to
pla
n of
ficia
ls. A
t thi
s le
vel,
empl
oyee
s m
ay
stru
ggle
to b
uild
ade
quat
e re
tirem
ent s
avin
gs. P
lan
offic
ials
sai
d th
ey
have
trie
d to
enc
oura
ge m
embe
rs to
con
tribu
te m
ore
to th
eir 4
01(k
) pla
ns,
but t
hese
effo
rts h
ave
not b
een
succ
essf
ul.
To a
ddre
ss ri
sing
act
uaria
lly re
quire
d pe
nsio
n co
ntrib
utio
n le
vels
and
bu
dget
pre
ssur
es, s
ome
stat
es a
nd lo
calit
ies
have
take
n ac
tions
to li
mit
empl
oyer
con
tribu
tions
in th
e sh
ort t
erm
or r
efin
ance
thei
r con
tribu
tions
.47
Thes
e st
rate
gies
incl
uded
cha
ngin
g ac
tuar
ial m
etho
ds o
r iss
uing
pen
sion
bo
nds
to s
uppl
emen
t oth
er s
ourc
es o
f fin
anci
ng fo
r pen
sion
pla
ns. S
uch
stra
tegi
es h
elp
plan
spo
nsor
s m
anag
e th
eir c
ontri
butio
ns in
the
near
term
, bu
t may
incr
ease
thei
r fut
ure
cost
s. F
ewer
nat
ionw
ide
data
are
ava
ilabl
e on
the
use
of th
ese
stra
tegi
es; h
owev
er, w
e w
ere
able
to d
ocum
ent t
heir
use
acro
ss s
ever
al o
f our
sel
ecte
d pe
nsio
n pl
ans.
48
Som
e st
ate
and
loca
l gov
ernm
ents
hav
e lim
ited
or d
efer
red
thei
r pen
sion
co
ntrib
utio
ns in
the
shor
t ter
m b
y m
akin
g ac
tuar
ial c
hang
es. I
t is
diffi
cult
to d
eter
min
e th
e re
cent
pre
vale
nce
of th
ese
chan
ges
natio
nwid
e;
how
ever
, fiv
e of
the
eigh
t sta
tes
and
one
of th
e lo
calit
ies
we
revi
ewed
had
im
plem
ente
d ac
tuar
ial c
hang
es to
redu
ce th
eir p
ensi
on c
ontri
butio
ns
sinc
e 20
08.
49
47
Sta
te a
nd lo
cal p
lan
spon
sors
can
als
o ad
dres
s th
eir p
ensi
on fi
nanc
e ch
alle
nges
by
adju
stin
g th
eir i
nves
tmen
t pol
icy,
par
ticul
arly
pla
n as
set a
lloca
tion,
whi
ch is
the
third
key
m
echa
nism
, bes
ides
ben
efit
polic
y an
d fu
ndin
g po
licy,
that
pla
n sp
onso
rs h
ave
in
atte
mpt
ing
to m
anag
e th
e am
ount
, ris
kine
ss, a
nd s
usta
inab
ility
of th
eir p
ensi
on c
osts
. A
less
risk
y as
set a
lloca
tion
can
rais
e es
timat
ed c
osts
but
als
o m
ake
them
less
vol
atile
; a
mor
e ris
ky a
lloca
tion
can
low
er e
stim
ated
cos
ts b
ut a
t the
pric
e of
gre
ater
risk
. We
have
pr
evio
usly
repo
rted
that
sta
te a
nd lo
cal p
lans
hav
e gr
adua
lly c
hang
ed th
eir a
sset
por
tfolio
s ov
er m
any
year
s by
incr
easi
ng th
eir a
lloca
tions
in h
ighe
r-ris
k in
vest
men
ts p
artly
in p
ursu
it of
hig
her r
etur
ns. S
ee G
AO
, Sta
te a
nd L
ocal
Gov
ernm
ent P
ensi
on P
lans
: Gov
erna
nce
Pra
ctic
es a
nd L
ong-
Term
Inve
stm
ent S
trate
gies
Hav
e E
volv
ed G
radu
ally
as
Pla
ns T
ake
On
Incr
ease
d In
vest
men
t Ris
k,
The
cha
nges
incl
uded
exp
andi
ng a
mor
tizat
ion
perio
ds (t
he
num
ber o
f yea
rs a
llotte
d to
pay
off
unfu
nded
liab
ilitie
s) a
nd a
djus
ting
smoo
thin
g te
chni
ques
(met
hods
for r
educ
ing
the
effe
ct o
f mar
ket v
olat
ility
GAO
-10-
754,
(Was
hing
ton,
D.C
.: A
ug. 2
4, 2
010)
. 48
Sin
ce im
plem
enta
tion
of a
ctua
rial c
hang
es s
omet
imes
doe
s no
t req
uire
a le
gisl
ativ
e ch
ange
, use
of s
uch
stra
tegi
es is
not
refle
cted
in th
e N
CS
L an
nual
repo
rts o
f sta
te
legi
slat
ive
chan
ges.
As
a re
sult,
our
ana
lysi
s of
suc
h ch
ange
s is
bas
ed o
n re
view
s of
our
se
lect
ed s
tate
s an
d lo
calit
ies
rath
er th
an N
CS
L re
ports
. 49
In th
e st
ates
we
revi
ewed
, act
uaria
l cha
nges
wer
e im
plem
ente
d ei
ther
by
stat
e le
gisl
atio
n or
by
the
pens
ion
plan
boa
rds.
Som
e St
ates
and
Loc
alit
ies
Hav
e A
djus
ted
Pen
sion
F
undi
ng P
ract
ices
, P
oten
tial
ly I
ncre
asin
g F
utur
e C
osts
Adj
usti
ng A
ctua
rial
Met
hods
Page
27
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
on p
ensi
on c
ontri
butio
ns b
y av
erag
ing
asse
t val
ues
over
mul
tiple
yea
rs).
50
For e
xam
ple,
Uta
h re
porte
d th
at it
incr
ease
d th
e am
ortiz
atio
n fo
r the
st
ate’
s re
tirem
ent s
yste
m fr
om 2
0 ye
ars
to 2
5 ye
ars
to e
xten
d th
e le
ngth
of
tim
e fo
r pay
ing
dow
n un
fund
ed p
ensi
on li
abilit
ies.
51
Som
e st
ate
and
loca
l gov
ernm
ents
, whi
le n
ot fo
rmal
ly c
hang
ing
thei
r un
derly
ing
actu
aria
l met
hods
, hav
e si
mpl
y de
ferre
d or
cap
ped
thei
r pe
nsio
n co
ntrib
utio
ns. T
wo
stat
es a
nd o
ne lo
calit
y w
e re
view
ed li
mite
d co
ntrib
utio
ns in
the
shor
t ter
m b
y ca
ppin
g in
crea
ses
in e
mpl
oyer
co
ntrib
utio
ns o
r by
sim
ply
post
poni
ng o
ther
wis
e sc
hedu
led
cont
ribut
ions
. C
appi
ng in
crea
ses
in c
ontri
butio
ns a
llow
ed th
ese
stat
es a
nd th
is lo
calit
y to
tem
pora
rily
supp
ress
the
incr
ease
s th
at w
ould
oth
erw
ise
have
bee
n re
quire
d gi
ven
2008
inve
stm
ent l
osse
s an
d ot
her f
acto
rs. I
n th
e ca
se o
f th
e Pe
nnsy
lvan
ia, t
he s
tate
add
ress
ed a
n ex
pect
ed 1
9 pe
rcen
t inc
reas
e in
act
uaria
lly re
quire
d co
ntrib
utio
ns to
the
Stat
e Em
ploy
ees’
Ret
irem
ent
Syst
em b
y ca
ppin
g an
nual
incr
ease
s at
3 p
erce
nt fo
r 201
2, 3
.5 p
erce
nt
for 2
013,
and
4.5
per
cent
ther
eafte
r. Si
mila
rly, t
he Il
linoi
s M
unic
ipal
R
etire
men
t Fun
d al
low
ed lo
cal p
lan
spon
sors
to c
ap c
ontri
butio
n in
crea
ses
at 1
0 pe
rcen
t sta
rting
in 2
010.
Alte
rnat
ivel
y, Il
linoi
s re
porte
d th
at it
rece
ntly
requ
ired
all I
llinoi
s st
ate
retir
emen
t sys
tem
s to
sw
itch
from
a m
arke
t val
uatio
n w
ith n
o sm
ooth
ing
to a
5-y
ear s
moo
thin
g m
etho
d fo
r cal
cula
ting
actu
aria
l ass
ets
and
empl
oyer
con
tribu
tions
to
less
en th
e im
med
iate
impa
ct o
f fis
cal y
ear 2
009
inve
stm
ent l
osse
s on
co
ntrib
utio
ns.
Alth
ough
adj
ustin
g pl
an fu
ndin
g pr
oduc
ed s
ome
shor
t-ter
m s
avin
gs fo
r st
ate
and
loca
l bud
gets
, it a
lso
incr
ease
d th
e un
fund
ed li
abilit
ies
of th
e pe
nsio
n sy
stem
and
will
nece
ssita
te la
rger
con
tribu
tions
in th
e fu
ture
. In
the
case
of P
hila
delp
hia,
the
city
use
d its
aut
horit
y un
der s
tate
law
to
parti
ally
def
er p
ensi
on p
aym
ents
by
$150
milli
on in
fisc
al y
ear 2
010
and
$90
milli
on in
201
1. W
hile
thes
e de
ferr
als
help
ed th
e ci
ty re
duce
its
cont
ribut
ions
in th
e sh
ort t
erm
, sta
te la
w re
quire
s th
at th
e m
oney
be
50
Oth
er a
ctua
rial c
hang
es, s
uch
as re
duci
ng th
e as
sum
ed ra
te o
f inv
estm
ent r
etur
ns, c
an
incr
ease
act
uaria
lly re
quire
d pe
nsio
n co
ntrib
utio
ns.
51U
tah
mov
ed fr
om a
n op
en 2
0-ye
ar a
mor
tizat
ion
perio
d (m
eani
ng th
at th
e am
ortiz
atio
n w
as fr
ozen
at 2
0 ye
ars)
to a
clo
sed
25-y
ear a
mor
tizat
ion
perio
d ( m
eani
ng th
at th
e am
ortiz
atio
n pe
riod
will
dec
reas
e an
nual
ly b
y on
e ye
ar).
As a
resu
lt, U
tah
is c
urre
ntly
at a
23
-yea
r am
ortiz
atio
n pe
riod,
and
the
perio
d w
ill c
ontin
ue to
dec
reas
e an
nual
ly u
nles
s its
bo
ard
take
s ac
tion
to c
hang
e th
e am
ortiz
atio
n po
licy.
Cap
ping
or
Pos
tpon
ing
Em
ploy
er C
ontr
ibut
ions
Page
28
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
repa
id w
ith in
tere
st b
y fis
cal y
ear 2
014.
The
city
has
ado
pted
a te
mpo
rary
1
perc
ent i
ncre
ase
in th
e sa
les
tax
to h
elp
cove
r the
se fu
ture
cos
ts.52
Issu
ing
pens
ion
oblig
atio
n bo
nds
(PO
B) is
ano
ther
fund
ing
stra
tegy
, al
thou
gh re
lativ
ely
few
sta
tes
and
loca
litie
s ha
ve u
sed
it, a
s it
can
expo
se
plan
spo
nsor
s to
add
ition
al m
arke
t ris
k. P
OBs
are
taxa
ble
gene
ral
oblig
atio
n bo
nds
that
pro
vide
a o
ne-ti
me
cash
infu
sion
into
the
pens
ion
syst
em. T
hey
conv
ert a
cur
rent
pen
sion
obl
igat
ion
into
a lo
ng-te
rm, f
ixed
ob
ligat
ion
of th
e go
vern
men
t iss
uing
the
bond
. PO
Bs a
re is
sued
for
gene
rally
one
of t
wo
purp
oses
: eith
er to
pro
vide
tem
pora
ry b
udge
t rel
ief
by fi
nanc
ing
a pl
an s
pons
or’s
act
uaria
lly re
quire
d co
ntrib
utio
n fo
r a s
ingl
e ye
ar, o
r as
part
of a
long
er-te
rm s
trate
gy fo
r pay
ing
off a
pla
n’s
unfu
nded
lia
bilit
y. U
sing
PO
Bs to
pay
off
all o
r a p
ortio
n of
a p
lan’
s un
fund
ed li
abilit
y po
tent
ially
redu
ces
futu
re a
ctua
rially
requ
ired
pens
ion
cont
ribut
ions
, but
re
quire
s pl
an s
pons
ors
to m
ake
annu
al d
ebt s
ervi
ce p
aym
ents
on
the
POBs
inst
ead.
53
We
anal
yzed
dat
a on
sta
te a
nd lo
cal g
over
nmen
t bon
d is
suan
ces
natio
nwid
e an
d fo
und
that
oth
er th
an th
e st
ates
of I
llinoi
s an
d C
onne
ctic
ut, a
nd th
e C
hica
go T
rans
it Au
thor
ity, m
ost s
tate
and
loca
l go
vern
men
ts h
ave
not i
ssue
d si
zabl
e PO
Bs o
ver t
he p
ast 6
yea
rs (s
ee
fig. 8
). Th
is ty
pe o
f pen
sion
fund
ing
has
been
lim
ited,
with
onl
y 25
or
few
er P
OB
issu
ance
s in
eac
h of
the
last
6 y
ears
. The
tota
l am
ount
of
POBs
issu
ed in
a s
ingl
e ye
ar h
as n
ot e
xcee
ded
mor
e th
an 1
per
cent
of
tota
l ass
ets
in s
tate
and
loca
l pen
sion
pla
ns.
52
Phi
lade
lphi
a w
as n
ot th
e on
ly lo
calit
y w
e re
view
ed th
at u
sed
a te
mpo
rary
tax
incr
ease
to
cove
r pen
sion
con
tribu
tions
. In
2009
, Spr
ingf
ield
, Mis
sour
i app
rove
d a
0.75
cen
t sal
es ta
x,
all o
f whi
ch w
ill g
o to
war
d fu
ndin
g th
e ci
ty’s
Pol
ice
Offi
cers
' and
Fire
fight
ers'
Ret
irem
ent
Fund
. 53
Issu
ing
PO
Bs
can
be a
leve
ragi
ng s
trate
gy, s
ince
fund
s ar
e bo
rrow
ed a
t a fi
xed
inte
rest
ra
te a
nd th
en in
vest
ed in
the
stoc
k m
arke
t in
an a
ttem
pt to
ach
ieve
a h
ighe
r rat
e of
retu
rn
(arb
itrag
e).
Issu
ing
Pen
sion
Obl
igat
ion
Bon
ds
Page
29
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Figu
re 8
: Pen
sion
Obl
igat
ion
Bon
d Is
suan
ces
Nat
ionw
ide,
Jan
uary
200
6–Ju
ne 2
011
Thes
e tra
nsac
tions
invo
lve
sign
ifica
nt ri
sks
for g
over
nmen
t ent
ities
be
caus
e in
vest
men
t ret
urns
on
the
bond
pro
ceed
s ca
n be
vol
atile
and
lo
wer
than
the
inte
rest
rate
on
the
bond
s. In
thes
e ca
ses,
PO
Bs c
an le
ave
plan
spo
nsor
s w
orse
off
than
they
wer
e be
fore
, jug
glin
g de
bt s
ervi
ce
paym
ents
on
the
POBs
in a
dditi
on to
thei
r ann
ual p
ensi
on c
ontri
butio
ns.
In a
rece
nt b
rief,
the
Cen
ter f
or S
tate
and
Loc
al G
over
nmen
t Exc
elle
nce
repo
rted
that
by
mid
-200
9, m
ost P
OBs
issu
ed s
ince
199
2 w
ere
a ne
t dr
ain
on g
over
nmen
t rev
enue
s.54
54
Cen
ter f
or S
tate
and
Loc
al G
over
nmen
t Exc
elle
nce,
Issu
e B
rief:
Pen
sion
Obl
igat
ion
Bon
ds: F
inan
cial
Cris
is E
xpos
es R
isks
(Was
hing
ton,
D.C
., Ja
nuar
y 20
10).
In li
ght o
f the
se c
once
rns,
offi
cial
s in
Page
30
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Penn
sylv
ania
not
ed th
at th
e st
ate
had
enac
ted
legi
slat
ion
in 2
010
proh
ibiti
ng th
e us
e of
PO
Bs.55
Two
of th
e pe
nsio
n sy
stem
s in
clud
ed in
our
revi
ew—
Illin
ois
and
Sono
ma
Cou
nty,
Cal
iforn
ia—
have
issu
ed P
OBs
sin
ce 2
008.
Illin
ois,
whi
ch is
di
scus
sed
at le
ngth
bel
ow, h
as b
een
the
larg
est s
ingl
e is
suer
in re
cent
ye
ars,
issu
ing
over
$7
billio
n in
PO
Bs s
ince
201
0. In
the
case
of S
onom
a C
ount
y, C
alifo
rnia
, the
cou
nty
issu
ed $
289
milli
on o
f PO
Bs in
201
0 w
ith
mat
uriti
es ra
ngin
g up
to 1
9 ye
ars.
Cou
nty
offic
ials
exp
lain
ed th
at th
e PO
Bs w
ere
finan
cial
ly a
dvan
tage
ous
beca
use
they
had
an
aver
age
inte
rest
rate
of j
ust u
nder
6 p
erce
nt, w
hich
is lo
wer
than
the
8 pe
rcen
t ex
pect
ed re
turn
on
the
pens
ion
fund
inve
stm
ents
at t
he ti
me
the
bond
s w
ere
issu
ed. T
he d
iffer
ence
bet
wee
n th
e PO
B in
tere
st ra
tes
and
the
assu
med
rate
of r
etur
n is
pro
ject
ed to
sav
e th
e co
unty
$93
milli
on in
co
ntrib
utio
ns o
ver t
he li
fe o
f the
bon
ds.
56
How
ever
, res
ults
cou
ld v
ary
sign
ifica
ntly
. The
PO
Bs c
ould
incr
ease
the
coun
ty’s
futu
re e
xpen
ses
if ac
tual
inve
stm
ent r
etur
ns fa
ll be
low
6 p
erce
nt. O
ver t
he p
rior 1
0-ye
ar
perio
d en
ding
in 2
010,
the
retir
emen
t sys
tem
’s a
vera
ge in
vest
men
t rat
e of
re
turn
was
4.1
per
cent
, but
retu
rns
over
the
prio
r 20-
year
per
iod
have
be
en s
igni
fican
tly h
ighe
r at 8
.4 p
erce
nt.
Stat
es a
nd lo
calit
ies
ofte
n pa
ckag
ed m
ultip
le p
ensi
on c
hang
es to
geth
er.
For e
xam
ple,
our
ana
lysi
s of
the
NC
SL re
ports
reve
aled
that
23
stat
es
have
bot
h in
crea
sed
empl
oyee
con
tribu
tions
and
redu
ced
mem
ber
bene
fits.
Eac
h ch
ange
mad
e, a
nd th
e in
terp
lay
amon
g th
e ch
ange
s,
cont
ribut
es to
var
ious
impa
cts
on p
lan
spon
sors
, pen
sion
sus
tain
abilit
y,
and
plan
mem
bers
. The
follo
win
g ex
ampl
es d
emon
stra
te s
ome
of th
e w
ays
stat
es h
ave
pack
aged
thes
e ch
ange
s, a
nd th
e va
ryin
g im
pact
s th
at
are
expe
cted
as
a re
sult.
55
The
prov
isio
ns o
f Pen
nsyl
vani
a’s
pens
ion
refo
rm le
gisl
atio
n (A
ct 2
010-
120)
, ena
cted
in
Nov
embe
r 201
0, a
re s
umm
ariz
ed in
Com
mon
wea
lth o
f Pen
nsyl
vani
a S
tate
Em
ploy
ees’
R
etire
men
t Sys
tem
, Com
preh
ensi
ve A
nnua
l Fin
anci
al R
epor
t for
the
year
end
ed
Dec
embe
r 31,
201
0 (H
arris
burg
, PA
: May
201
1). T
he re
port
desc
ribes
the
act’s
pro
visi
ons
for r
educ
ing
bene
fits
for f
utur
e pl
an m
embe
rs a
nd fo
r cha
ngin
g fu
ndin
g m
etho
ds, a
nd
note
s th
at th
e ac
t als
o pr
ohib
its th
e us
e of
pen
sion
obl
igat
ion
bond
s fo
r fun
ding
liab
ilitie
s.
24 P
a. C
.S.A
. § 8
308
(201
0).
56Th
e co
unty
pen
sion
sys
tem
sub
sequ
ently
low
ered
its
assu
med
rate
of r
etur
n to
7.7
5 pe
rcen
t. Th
is a
ctio
n, a
long
with
any
futu
re a
ctua
rial c
hang
es, w
ould
affe
ct th
e ex
pect
ed
savi
ngs
from
the
PO
Bs.
Stat
es a
nd L
ocal
itie
s O
ften
C
ombi
ne S
trat
egie
s
Page
31
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Mis
sour
i is
an e
xam
ple
of a
sta
te th
at p
acka
ged
incr
ease
s in
mem
ber
cont
ribut
ions
with
redu
ctio
ns in
ben
efits
to n
arro
w th
e ga
p be
twee
n pl
an
asse
ts a
nd li
abilit
ies.
For
new
gen
eral
mem
bers
of t
he M
isso
uri S
tate
Em
ploy
ees
Ret
irem
ent S
yste
m a
nd th
e M
isso
uri D
epar
tmen
t of
Tran
spor
tatio
n an
d H
ighw
ay P
atro
l Em
ploy
ees’
Ret
irem
ent S
yste
m, t
he
stat
e in
crea
sed
the
norm
al re
tirem
ent a
ge fr
om 6
2 to
67,
exp
ande
d th
e ve
stin
g pe
riod
from
5 to
10
year
s, a
nd re
quire
d m
embe
rs to
con
tribu
te 4
pe
rcen
t of p
ay to
the
pens
ion
syst
em, a
lthou
gh c
urre
nt m
embe
rs d
o no
t co
ntrib
ute.
The
se c
hang
es a
re e
xpec
ted
to lo
wer
the
stat
e’s
cont
ribut
ions
to
the
syst
em o
ver t
he lo
ng ru
n by
mor
e th
an 5
per
cent
of p
ayro
ll, b
ut th
e in
itial
sav
ings
are
muc
h sm
alle
r. In
fisc
al y
ear 2
012,
the
bene
fit a
nd
cont
ribut
ion
chan
ges
are
expe
cted
to re
duce
the
stat
e’s
cont
ribut
ion
to it
s la
rges
t pla
n by
less
than
1 p
erce
nt o
f pay
roll,
sin
ce th
ere
will
be o
nly
a sm
all n
umbe
r of n
ewly
hire
d m
embe
rs in
the
syst
em. H
owev
er, b
y fis
cal
year
201
8, e
mpl
oyee
s co
vere
d un
der t
he re
duce
d be
nefit
stru
ctur
e ar
e ex
pect
ed to
acc
ount
for o
ver h
alf o
f pay
roll,
furth
er re
duci
ng th
e st
ate’
s an
nual
con
tribu
tions
. Pla
n of
ficia
ls s
aid
thes
e ch
ange
s co
uld
pose
issu
es
for r
ecru
itmen
t and
rete
ntio
n, a
lthou
gh th
e in
fluen
ce o
f ret
irem
ent p
lan
deta
ils w
ill va
ry b
ased
on
indi
vidu
al c
ircum
stan
ces.
The
y al
so n
oted
that
th
e ch
ange
s co
uld
affe
ct e
mpl
oyee
mor
ale,
sin
ce n
ew e
mpl
oyee
s w
ill ha
ve to
wor
k lo
nger
to q
ualif
y fo
r ben
efits
and
the
requ
ired
pens
ion
cont
ribut
ions
will
redu
ce th
eir c
ompe
nsat
ion.
In th
e ca
se o
f Pen
nsyl
vani
a, th
e st
ate
pass
ed a
pac
kage
of p
ensi
on
chan
ges
in 2
010
that
offs
et a
sho
rt-te
rm fu
ndin
g ca
p w
ith lo
ng-te
rm
bene
fit re
duct
ions
to li
mit
the
impa
ct o
n th
e pl
an’s
fund
ed s
tatu
s. F
or th
e St
ate
Empl
oyee
s’ R
etire
men
t Sys
tem
, the
mos
t sig
nific
ant f
undi
ng
chan
ge w
as a
sta
tuto
ry c
ap o
n em
ploy
er c
ontri
butio
n ra
te in
crea
ses.
The
le
gisl
atio
n ad
dres
sed
an e
xpec
ted
19 p
erce
nt in
crea
se in
act
uaria
lly
requ
ired
cont
ribut
ions
by
capp
ing
any
incr
ease
s at
3 p
erce
nt fo
r fis
cal
year
201
1/20
12, 3
.5 p
erce
nt fo
r fis
cal y
ear 2
012/
2013
, and
4.5
per
cent
th
erea
fter.
In th
e sh
ort t
erm
, the
cap
s ef
fect
ivel
y re
duce
d th
e st
ate’
s ex
pect
ed c
ontri
butio
ns o
ver t
he n
ext 4
yea
rs b
y $2
.5 b
illion
. But
in th
e lo
ng te
rm, t
he c
aps,
alo
ng w
ith o
ther
act
uaria
l cha
nges
, are
exp
ecte
d to
in
crea
se th
e st
ate’
s pe
nsio
n co
ntrib
utio
ns to
the
syst
em b
y $7
billi
on o
ver
the
next
32
year
s. T
o he
lp o
ffset
the
addi
tiona
l lon
g-te
rm c
osts
, Pe
nnsy
lvan
ia e
nact
ed p
ensi
on le
gisl
atio
n ca
lling
for v
ario
us b
enef
it re
duct
ions
for f
utur
e em
ploy
ees.
For
exa
mpl
e, th
e st
ate
redu
ced
the
bene
fit m
ultip
lier f
or fu
ture
em
ploy
ees
from
2.5
to 2
per
cent
(with
an
optio
n fo
r mem
bers
to m
aint
ain
the
2.5
mul
tiplie
r by
payi
ng a
hig
her
mem
ber c
ontri
butio
n ra
te);
incr
ease
d th
e no
rmal
retir
emen
t age
from
60
to 6
5; a
nd e
xpan
ded
the
vest
ing
perio
d fro
m 5
to 1
0 ye
ars.
The
se b
enef
it re
duct
ions
will
redu
ce fu
ture
liab
ilitie
s an
d ar
e ex
pect
ed to
low
er th
e
Red
ucin
g B
enef
its
and
Incr
easi
ng C
ontr
ibut
ions
for
N
ew M
embe
rs
Com
bini
ng S
hort
-Ter
m F
undi
ng
Adj
ustm
ents
wit
h Lo
nger
-Ter
m
Ben
efit
Red
ucti
ons
Page
32
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
stat
e’s
pens
ion
cost
s by
alm
ost $
8.5
billio
n ov
er th
e ne
xt 3
2 ye
ars,
for a
n es
timat
ed n
et s
avin
gs o
f $1.
5 bi
llion
over
the
cost
of t
he c
aps
and
othe
r fu
ndin
g ad
just
men
ts. B
oth
pens
ion
and
budg
et o
ffici
als
said
thes
e ch
ange
s w
ill he
lp th
e st
ate
bette
r man
age
risin
g pe
nsio
n co
ntrib
utio
ns in
th
e sh
ort t
erm
, but
the
over
all s
avin
gs fr
om th
e le
gisl
ativ
e pa
ckag
e ar
e re
lativ
ely
mod
est o
ver t
he lo
ng te
rm. M
eanw
hile
, the
cha
nges
will
requ
ire
new
em
ploy
ees
to w
ork
long
er fo
r low
er b
enef
its a
nd w
ill le
ave
mor
e em
ploy
ees
with
no
bene
fit a
t all.
Pla
n of
ficia
ls s
aid
it is
too
early
to te
ll if
this
will
affe
ct e
mpl
oyee
recr
uitm
ent a
nd re
tent
ion.
57
In th
e ca
se o
f Illin
ois,
the
stat
e co
mbi
ned
use
of P
OBs
, act
uaria
l cha
nges
, an
d be
nefit
redu
ctio
ns to
man
age
the
stat
e’s
pens
ion
cost
s. T
he s
tate
is
sued
$3.
5 bi
llion
of P
OBs
in 2
010
and
$3.7
billi
on in
201
1 w
ith
mat
uriti
es u
p to
8 y
ears
and
use
d th
e pr
ocee
ds to
fund
the
stat
e’s
annu
al
cont
ribut
ions
to v
ario
us p
ensi
on s
yste
ms.
An
Illin
ois
budg
et o
ffici
al
expl
aine
d th
at is
suin
g th
e PO
Bs h
elpe
d th
e st
ate
avoi
d m
akin
g ad
ditio
nal
spen
ding
cut
s to
oth
er p
ortio
ns o
f the
sta
te’s
bud
get.
Alte
rnat
ivel
y, g
iven
th
e st
ate’
s bu
dget
ary
chal
leng
es, s
ome
pens
ion
offic
ials
sai
d th
at if
the
stat
e ha
d no
t iss
ued
the
POBs
, it i
s m
ore
likel
y th
at it
wou
ld h
ave
not p
aid
its fu
ll re
quire
d pe
nsio
n co
ntrib
utio
ns.
Use
of P
OBs
will
be c
ostly
to Il
linoi
s, s
ince
the
stat
e w
ill fa
ce a
nnua
l deb
t se
rvic
e pa
ymen
ts o
f abo
ut $
1 bi
llion
over
the
next
9 y
ears
. How
ever
, the
st
ate
incr
ease
d in
divi
dual
and
cor
pora
te ta
xes
in 2
010
and
stat
e bu
dget
of
ficia
ls to
ld u
s th
e st
ate
plan
s to
use
the
addi
tiona
l rev
enue
to fu
nd th
ese
debt
ser
vice
pay
men
ts a
s w
ell a
s ot
her b
udge
tary
prio
ritie
s. W
heth
er th
e st
ate’
s st
atut
orily
requ
ired
cont
ribut
ions
are
fund
ed th
roug
h PO
Bs o
r ge
nera
l rev
enue
doe
s no
t dire
ctly
affe
ct th
e fin
anci
al c
ondi
tion
of th
e pe
nsio
n sy
stem
. How
ever
, som
e pe
nsio
n of
ficia
ls w
ere
conc
erne
d th
at
the
debt
ser
vice
pay
men
ts o
n th
e PO
Bs w
ould
redu
ce a
vaila
ble
fund
ing
for f
utur
e pe
nsio
n co
ntrib
utio
ns.
Illin
ois
has
also
low
ered
em
ploy
er c
ontri
butio
ns to
the
stat
e’s
pens
ion
syst
ems
in th
e sh
ort t
erm
by
adju
stin
g ac
tuar
ial m
etho
ds. I
n 20
09, t
he
stat
e re
quire
d its
pen
sion
sys
tem
s to
sw
itch
from
a m
arke
t val
ue (n
o sm
ooth
ing)
to a
5-y
ear s
moo
thin
g m
etho
d fo
r cal
cula
ting
actu
aria
l ass
ets
57
The
expa
nded
ves
ting
requ
irem
ent,
from
5 y
ears
to 1
0, w
ould
mea
n th
at m
ore
empl
oyee
s w
ould
leav
e se
rvic
e w
ith n
o be
nefit
at a
ll, e
xcep
t for
a re
turn
of m
embe
r co
ntrib
utio
ns. I
n th
e pr
ivat
e se
ctor
, 5-y
ear v
estin
g ha
s be
en th
e st
anda
rd fo
r def
ined
be
nefit
pla
ns s
ince
198
6.
Man
agin
g F
undi
ng t
hrou
gh
PO
Bs,
Act
uari
al C
hang
es, a
nd
Ben
efit
Red
ucti
ons
Page
33
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
and
empl
oyer
con
tribu
tions
. Pla
n of
ficia
ls e
xpla
ined
that
the
chan
ge w
as
inte
nded
to re
duce
the
stat
e’s
cont
ribut
ions
and
dam
pen
the
impa
ct o
f fis
cal y
ear 2
009
mar
ket l
osse
s fo
r the
sho
rt te
rm. A
s a
resu
lt of
the
chan
ge, t
he s
tate
’s a
ctua
rially
cal
cula
ted
cont
ribut
ion
to th
e St
ate
Empl
oyee
s’ R
etire
men
t Sys
tem
of I
llinoi
s w
as re
duce
d by
$10
0 m
illion
in
the
first
yea
r, ac
cord
ing
to p
lan
offic
ials
. How
ever
, pla
n ac
tuar
ies
note
d th
at th
is s
trate
gy o
nly
defe
rs c
ontri
butio
ns w
hen
plan
ass
ets
expe
rienc
e a
loss
, as
they
did
in fi
scal
yea
r 200
9. F
utur
e co
ntrib
utio
ns w
ill be
hig
her
than
they
wou
ld h
ave
been
pre
viou
sly
once
the
fisca
l yea
r 200
9 m
arke
t lo
sses
are
fully
reco
gniz
ed.
In a
dditi
on to
the
use
of P
OBs
and
act
uaria
l cha
nges
, Illin
ois
also
redu
ced
bene
fits
for n
ew e
mpl
oyee
s an
d ap
plie
d th
e fu
ture
sav
ings
to re
duce
em
ploy
er c
ontri
butio
ns in
the
shor
t ter
m. F
or e
xam
ple,
the
stat
e ra
ised
ne
w e
mpl
oyee
s’ n
orm
al re
tirem
ent a
ge to
67,
cap
ped
final
ave
rage
sa
larie
s us
ed fo
r pen
sion
pur
pose
s, a
nd re
duce
d an
nual
CO
LAs.
58
Ac
cord
ing
to p
lan
offic
ials
, the
se c
hang
es a
re e
xpec
ted
to re
duce
the
Stat
e Em
ploy
ees’
Ret
irem
ent S
yste
m’s
futu
re li
abilit
ies
by a
third
. Sta
te
budg
et o
ffici
als
said
the
proj
ecte
d to
tal e
stim
ated
sav
ings
for t
he s
tate
ov
er th
e ne
xt 3
5 ye
ars
will
be a
bout
$22
0 bi
llion.
Sin
ce th
e ch
ange
s ap
ply
only
to n
ew e
mpl
oyee
s, th
e sa
ving
s w
ill sl
owly
acc
rue
over
the
next
35
year
s. N
ever
thel
ess,
the
stat
e to
ok a
dvan
ced
cred
it fo
r the
se fu
ture
be
nefit
redu
ctio
ns, f
urth
er re
duci
ng c
ontri
butio
ns in
the
shor
t ter
m.
Acco
rdin
g to
pla
n ac
tuar
ies,
by
taki
ng th
is a
dvan
ce c
redi
t, th
e st
ate
also
in
crea
sed
unfu
nded
liab
ilitie
s in
the
shor
t ter
m, a
dver
sely
affe
ctin
g its
re
tirem
ent s
yste
ms.
Stat
e an
d lo
cal g
over
nmen
ts c
ontin
ue to
exp
erie
nce
the
linge
ring
effe
cts
of in
vest
men
t los
ses
and
budg
et p
ress
ures
in th
e w
ake
of th
e re
cent
ec
onom
ic d
ownt
urn.
Alth
ough
mos
t lar
ge s
tate
and
loca
l gov
ernm
ent
pens
ion
plan
s st
ill m
aint
ain
subs
tant
ial a
sset
s, s
uffic
ient
to c
over
thei
r pe
nsio
n ob
ligat
ions
for a
dec
ade
or m
ore,
hei
ghte
ned
conc
erns
ove
r the
lo
ng-te
rm s
usta
inab
ility
of th
e pl
ans
has
spur
red
man
y st
ates
and
lo
calit
ies
to im
plem
ent a
var
iety
of r
efor
ms,
incl
udin
g re
duct
ions
in
bene
fits
and
incr
ease
s in
mem
ber c
ontri
butio
ns.
58
Acc
ordi
ng to
pla
n of
ficia
ls, c
appi
ng s
alar
ies
used
for b
enef
it ca
lcul
atio
ns a
nd fo
r de
term
inin
g co
ntrib
utio
ns d
ecre
ases
the
antic
ipat
ed a
mou
nt o
f fut
ure
payr
oll a
nd
empl
oyee
con
tribu
tions
, whi
ch a
ffect
s fu
ture
sta
te c
ontri
butio
ns.
Con
clud
ing
Obs
erva
tion
s
Page
34
GAO
-12-
322
Sta
te a
nd L
ocal
Pen
sion
s
Des
pite
thes
e ef
forts
, con
tinue
d vi
gila
nce
is n
eede
d to
hel
p en
sure
that
st
ates
and
loca
litie
s ca
n co
ntin
ue to
mee
t the
ir pe
nsio
n ob
ligat
ions
. Se
vera
l fac
tors
will
ultim
atel
y af
fect
the
sust
aina
bilit
y of
sta
te a
nd lo
cal
pens
ion
plan
s ov
er th
e lo
ng te
rm. I
mpo
rtant
am
ong
them
are
whe
ther
go
vern
men
t spo
nsor
s m
aint
ain
adeq
uate
con
tribu
tions
tow
ard
thes
e pl
ans,
and
whe
ther
inve
stm
ent r
etur
ns m
eet s
pons
ors’
long
-term
as
sum
ptio
ns. G
oing
forw
ard,
gro
win
g bu
dget
pre
ssur
es w
ill co
ntin
ue to
ch
alle
nge
stat
e an
d lo
cal g
over
nmen
ts’ a
bilit
ies
to p
rovi
de a
dequ
ate
cont
ribut
ions
to h
elp
sust
ain
thei
r pen
sion
pla
ns a
nd e
nsur
e a
secu
re
retir
emen
t for
cur
rent
and
futu
re e
mpl
oyee
s.
We
prov
ided
offi
cial
s fro
m th
e In
tern
al R
even
ue S
ervi
ce a
nd th
e So
cial
Se
curit
y Ad
min
istra
tion
with
a d
raft
of th
is re
port.
The
y pr
ovid
ed te
chni
cal
com
men
ts th
at w
e in
corp
orat
ed, a
s ap
prop
riate
. In
addi
tion,
we
prov
ided
of
ficia
ls fr
om th
e st
ates
and
citi
es w
e re
view
ed w
ith p
ortio
ns o
f the
dra
ft re
port
that
add
ress
ed a
spec
ts o
f the
pen
sion
fund
s in
thei
r jur
isdi
ctio
ns.
We
inco
rpor
ated
thei
r tec
hnic
al c
omm
ents
, as
appr
opria
te, a
s w
ell.
We
are
send
ing
copi
es o
f thi
s re
port
to re
leva
nt c
ongr
essi
onal
co
mm
ittee
s, th
e C
omm
issi
oner
s of
the
Inte
rnal
Rev
enue
Ser
vice
and
the
Soci
al S
ecur
ity A
dmin
istra
tion,
and
oth
er in
tere
sted
par
ties.
In a
dditi
on,
this
repo
rt w
ill be
ava
ilabl
e at
no
char
ge o
n G
AO’s
web
site
at
http
://w
ww
.gao
.gov
.
Age
ncy
Com
men
ts
