TY - JOUR AU - Munnell, Alicia H AU - Aubry, Jean-Pierre AU - Quinby, Laura TI - Public Pension Funding in Practice JF - National Bureau of Economic Research Working Paper Series VL - No. 16442 PY - 2010 Y2 - October 2010 DO - 10.3386/w16442 UR - http://www.nber.org/papers/w16442 L1 - http://www.nber.org/papers/w16442.pdf N1 - Author contact info: Alicia Munnell Boston College Center for Retirement Research 140 Commonwealth Avenue Chestnut Hill, MA 02467 Tel: (617) 552-1934 Fax: (617) 552-0191 E-Mail: munnell@bc.edu Jean-Pierre Aubry Center for Retirement Research at Boston College 140 Commonwealth Avenue Chestnut Hill, MA 02467 Tel: 617-552-1728 E-Mail: aubryj@bc.edu Laura Quinby Center for Retirement Research at Boston College 140 Commonwealth Avenue Chestnut Hill, MA 02467 E-Mail: quinbyl@bc.edu M1 - published as Alicia H. Munnell, Jean-Pierre Aubry, Laura Quinby. "Public Pension Funding in Practice," in Jeffrey R. Brown and Robert L. Clark, organizers, "The Economics of State and Local Pensions" Journal of Pension Economics and Finance, volume 10, issue 2, (Cambridge University Press) (2011) M3 - presented at "State and Local Pensions Conference", August 19-20, 2010 AB - Public pension funding has recently become a front-burner policy issue in the wake of the financial crisis and given the pending retirement of large numbers of baby boomers. This paper examines the current funding of state and local pensions using a sample of 126 plans, estimating an aggregate funded ratio in 2009 of 78 percent. Projections for 2010-2013 suggest that some continued deterioration is likely. Funded status can vary significantly among plans, so the paper explores the influence of four types of factors: funding discipline, plan governance, plan characteristics, and the fiscal situation of the state. Judging the adequacy of funding requires more than just a snapshot of assets and liabilities, so the paper examines how well plans are meeting their Annual Required Contribution and what factors influence whether they make them. The paper also addresses the controversy over what discount rate to use for valuing liabilities, concluding that using a riskless rate of return could help improve funding discipline but would need to be implemented in a manageable way. Finally, the paper assesses whether plans face a near-term liquidity crisis and finds that most have assets on hand to cover benefits over the next 15-20 years. The bottom line is that, like private investors, public plans have been hit hard by the financial crisis and their full recovery is dependent on the rebound of the economy and the stock market. ER -