Public Retirement Systems Need Sustainable Policies to Navigate Volatile Financial Markets

State pension funding gap, 2021

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Public Retirement Systems Need Sustainable Policies to Navigate Volatile Financial Markets

Table 1

How Kentucky, Pennsylvania, South Carolina, and West Virginia Managed Pension Debt

Net amortization process in 4 states, 2014 and 2021

Kentucky Pennsylvania South Carolina West Virginia
2014 2021 2014 2021 2014 2021 2014 2021
Paid the ADEC? No Yes No Yes Yes Yes Yes Yes
Starting unfunded $32,206 $30,343 $54,599 $66,465 $20,225 $29,187 $5,220 $3,777
Discount rate 5.93% 6.37% 7.50% 7.19% 7.50% 7.25% 7.50% 7.50%
Service cost $1,166 $780 $3,083 $2,888 $895 $1,245 $291 $292
Interest on pension debt $1,908 $1,933 $4,095 $4,776 $1,517 $2,116 $392 $283
Employee contribution $435 $460 $1,382 $1,538 $779 $1,127 $162 $187
Net amortization benchmark $2,639 $2,252 $5,796 $6,125 $1,633 $2,235 $520 $388
Employer contribution $934 $2,485 $3,189 $7,898 $1,179 $2,144 $769 $624
Net amortization -$1,705 $233 -$2,607 $1,773 -$455 -$91 $249 $236
Employer contribution/ payroll 18% 47% 17% 38% 14% 19% 26% 19%
Net amort/payroll 50% 42% 31% 30% 19% 20% 18% 12%
Shortfall/payroll 33% -4% 14% -9% 5% 1% -9% -7%
Covered payroll $5,232 $5,335 $18,481 $20,560 $8,491 $11,261 $2,926 $3,224
Expected unfunded $33,911 $30,110 $57,206 $64,692 $20,680 $29,278 $4,971 $3,541
Actual unfunded $31,386 $27,973 $54,438 $53,762 $19,328 $24,503 $3,820 $448
Note: All dollar figures are in millions. “Actuarially determined employer contributions” (ADEC) are as reported by the pension plan based on calculations by the plan actuary. “Expected unfunded” is what the pension debt would have been if all assumptions proved true and no policies were changed that year; “actual unfunded” is the reported pension debt at the end of the year after including unexpected investment performance and demographic experience. Shortfall as a share of payroll represents how much the employer contribution rate would need to increase to meet the net amortization benchmark; negative values indicate that contributions are above the benchmark.

Source: State and pension plan financial reports and actuarial valuations