Enhancing Sustainability of Public Pensions: A New Approach to Pension Funding
The report provides state-by-state analysis and explores practical tools like stabilization funds to help governments achieve and maintain fiscal sustainability over time.
Are public pensions sustainable? The answer is yes—with moderate fiscal adjustments and a smarter approach to measuring pension health.
This groundbreaking 2022 study from NCPERS introduces "sustainability valuation," a novel framework that examines unfunded pension liabilities in their proper context: the 30-year time horizon over which they're amortized, measured against the economic capacity to support them.
The Problem with Current Approaches
Critics of public pensions often compare 30-year liabilities to one-year revenues—like demanding a homeowner pay off their 30-year mortgage by the end of the year. This misleading comparison creates unnecessary alarm and drives harmful policy decisions.
When we make an apples-to-apples comparison—30-year liabilities against 30-year economic capacity—a different picture emerges. Public pensions are fiscally sustainable, or can be made so at reasonable cost.
Key Findings
Based on 2018 data, state and local pension systems across the United States could achieve fiscal sustainability by reducing unfunded liabilities by approximately $141 billion—just 0.8% of the economy, or about 3% of total unfunded liabilities at that time.
The study also reveals that:
- Plans with stable unfunded liabilities relative to their economy are better funded
- More sustainable systems have lower employer contribution rates
- For each 1% decline in personal income needed to stabilize unfunded liabilities, funding levels improve by about 7.7%
A Practical Path Forward
Rather than cutting benefits or closing plans to new hires, jurisdictions can enhance pension sustainability by adding sustainability valuation to existing practices like actuarial valuation and stress testing.
The report provides state-by-state analysis and explores practical tools like stabilization funds to help governments achieve and maintain fiscal sustainability over time.
Download the full report to learn how sustainability valuation can strengthen public pensions while protecting retirement security for teachers, police officers, firefighters, and all public employees who serve our communities.