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Market Surge Helps Stabilize Pension Funding in 2021

By Anna Petrini | Sept. 29, 2021 | State Legislatures News | Print

According to a new report from The Pew Charitable Trusts, state retirement systems closed out the 2021 fiscal year in their best condition since the Great Recession—a startling result given many analysts’ predictions that the pandemic-induced recession could increase pension fund shortfalls.

Instead, states have achieved funded levels of over 80%, thanks in part to a decade of increased contributions from public employees and taxpayers and 2021’s once-in-a-generation investment performance.

The $5 trillion federal economic stimulus helped buoy markets and boost investment returns for public funds to their highest levels in 30 years. By Pew’s calculation, returns over 25% in fiscal year 2021 helped increase retirement system assets by over half a trillion dollars nationally.

But manic markets are just part of the turnaround story. According to preliminary figures, Pew expects states to have collectively met their minimum contribution standard for the first time this century.

Pew found contributions have increased an average 8% each year over the last 10 years. Dramatic increases in pension payments have even propelled some of the more financially troubled systems nearer sustainability. Illinois, Kentucky, Pennsylvania and New Jersey increased contributions by an average of 15% a year over the same period.

According to Pew’s analysis of the latest, most comprehensive figures, 2019 saw signs of stabilization across state retirement systems, meaning growth in unfunded liabilities (pension debt) had slowed or reversed. But they anticipate the market rally in the intervening 18 months has helped states realize total unfunded liabilities below the $1 trillion mark.

Since the Great Recession, every state has enacted retirement benefit changes in an effort to lower costs, and many states have put in place tools like stress testing to measure risk and manage uncertainty.

Despite states’ recent funding achievements, the volatility of the pandemic era has Pew sounding a note of caution. Having a plan for future uncertainty can help policymakers capitalize on successes and mitigate the effect of downturns on pension plan balance sheets and state budgets.

To learn more about the fiscal impacts of the rapid COVID-19 recession and recovery on public pension funding and investments, join us at NCSL’s 2021 Legislative Summit in Tampa.

Anna Petrini is a senior policy specialist in NCSL’s Employment, Labor and Retirement Program.

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