State Retirement Plans Take a Hit
By Amy Vandervort-Clark, CSG policy analyst
Already struggling state retirement plans have taken another beating with the recent stock market crumble and economic crisis. Since most states have moved into nongovernmental investments to support their retirement systems, they too have seen their assets dwindle.
Delaware reported a loss of $1.9 billion in its state pension fund since October. In Georgia and Virginia, officials say funds have each lost $11 billion. States are slashing budgets and considering withholding pay raises and other benefits, as well as raising the retirement age and employee contributions to offset these losses.
The Government Accountability Office estimates 20 million state and local government employees and 7 million retirees have been promised pensions and other post-employment benefits through state retirement plans. Current benefit checks total around $150 billion each year. As a flood of baby boomers enter retirement and the average life span gets longer, the projected strain on state retirement systems may lead to drastic changes in retirement benefits.
The outlook, however, may not be so bleak. A joint press release in September from the National Association of State Retirement Administrators and the National Council on Teacher Retirement asserts that, despite the recent economic downturn, state and local retirement systems are sound.
“Public pension funds are intentionally designed to withstand market fluctuations—even ups and downs as dramatic as those in recent days and in years past,” Terry Slattery, president of the National Association of State Retirement Administrators and executive director of New Mexico Public Employees Retirement Association, said in the press release.
In fact, the National Association of State Retirement Administrators said public retirement systems have withstood this kind of economic mayhem in the past and have endured. State and local plans muddled through the market crash of 1987 when the Dow Jones Industrial Average dropped 500 points in one day; public pensions survived the Enron, Arthur Andersen and WorldCom scandals, as well as the bursting of the dot-com stock bubble during the late 1990s and into 2002.
To aid states in addressing these concerns, The Council of State Governments will host a two-day conference at its annual meeting in Omaha Dec. 3-7.