Pension Benefit Costs Cut by Record 43 States, Study Says

Pension benefits for U.S. public workers were reduced by a record 43 states over three years to cut costs following the longest recession since the 1930s, according to the National Conference of State Legislatures.

Two recessions since 1999 have made it difficult for states to keep up with funding 126 pensions, reducing estimated assets held by the plans to 77 percent of projected liabilities in 2010 from 103 percent, the report said, citing data from the Boston College Center for Retirement Research in Newton, Massachusetts.

“By the end of the first decade of this century, state retirement plans had suffered an enormous reversal from their financial status in 1999,” said the report by Ron Snell, a director with the group in Denver.

Funding concerns arise in “a climate of opinion that questions public-employee compensation compared to the grim outlook for employment, retirement benefits and health insurance in the country overall,” Snell said in the document.

The so-called funded ratio of the plans may be as low as 53 percent, according to the report. States raised employee contribution rates, forced workers to stay on the job longer before retiring and raised the age for full benefits. Only a few, such as Utah, Alaska and Indiana, began offering 401(k)- style plans. At least 10 cut post-employment benefits.

Increasing Steps

Legislation to reduce pension benefits was rare before 2005, Snell said in the report. Alterations began to increase in 2009 when 10 states made reductions in benefits or raised contributions or other changes. The next year, 21 took such steps and 32 did in 2011. Some made changes more than once.

Employee contribution rates were increased in 30 states, including for current workers in New Mexico and Rhode Island, from 2009 to last year. Employer payments were cut in 10 to offset increased payroll contributions. And 17 states last year changed the formula to calculate benefits to make employees work longer to qualify, after 16 made such moves in 2010 an 2009.

The report said reluctance to move to defined-contribution plans like 401(k)s, which may limit costs, from traditional defined-benefit pensions resulted from concern about how much the change would cost.

To contact the reporter on this story: Darrell Preston in Dallas at dpreston@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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