state and local government pension plans
DESCRIPTION
The recent economic downturn combined with continuing budget challenges has heightened concerns about the financial condition of state and local pension plans. Pension funding is a long-term endeavor, but states and local governments often have annual balanced budget requirements that can pit government contributions to pension plans against other pressing funding needs.TRANSCRIPT
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