Ongoing Trend: Public-Sector Employees Contributing More to their Pension Plans

Wednesday, July 6, 2016

Public-sector employees are contributing more money to their pension plans, a trend that is expected to increase, according to the New York Times. Unlike most of the private sector, government employees have always been responsible for making contributions to their defined benefit plans—a steady 5% of salary over the last ten years, but up to a median 6% in 2014, according to a recent report from the National Association of State Retirement Administrators (NASRA). Quarterly employee contributions averaged about $10.8 billion in 2015, the highest amount ever, and an increase of 1.39% from the 2014 average and 7.69% from the 2013 average, according to the U.S. Census Bureau.

Nearly all states have made pension reforms since 2009, and more than 35 states have passed increases to required employee contribution rates, according to research from NASRA. (Also see the Public Plans Database for a comprehensive look at U.S. public pension plan data.)

Often, congressional proposals to address pension “problems” are not limited to the plans that are in distress. Instead they seek to impose a federal mandate on all state and local governments in areas within the fiscal sovereignty of those states and localities. These proposals are conflicting, administratively burdensome, and costly. Moreover, some of their assumptions about management of pension funds directly contradicts GFOA’s best practices on pension and benefits administration. One of those assumptions is that public employees don’t have “skin in the game.” On the contrary; as the data show, public employees contribute a percentage of their salaries to their retirement funds, as GFOA recommends. GFOA's Sustainable Funding Practices of Defined Benefit Pension Plans and Sustainable Pension Benefit Tiers best practices, as well as Pension Funding: a Guide for Elected Officials, state that long-term funding is accomplished through regular contributions from both the employer and employee. (Check out GFOA’s Pension Resource Center for more information on the fiscal condition of public pension systems and GFOA’s continuing efforts to educate members of Congress.)