Maybe it’s time for pension plans to explore other funding strategies aside from public employer contributions. Plan sponsors typically use the annual required contribution (ARC) or the actuarially determined employer contribution (ADEC) to meet public pension liabilities. But a number of states have found success experimenting with lesser-known methods.

It could be useful for other public retirement programs to consider these strategies, according to a report released this week from the National Institute on Retirement Security. While resilient markets have buoyed public pension funding levels, many state governments will continue to face budgetary challenges next year, which is likely to impact contributions and hurt funding levels, researchers said.

Here are four funding strategies to help keep pension costs stable over time, according to the study: Employer Side Accounts. A funding idea borrowed from the private sector, an employer side account allows plan sponsors to pre-pay into separate accounts that allow them to reduce future contributions. Theoretically, this means employers can pay more during better economic periods so they can get away with paying less during fiscally tougher times.

An early adopter of the approach is the Oregon Public Employees Retirement System (PERS), which in 2002 was permitted to use these separate funds to reduce minimum pension contributions for a 20-year amortization period, and has since expanded the program to six, 10, or 16-year amortization periods. About $5.2 billion in a $65.7 billion total system portfolio was in employer side accounts in 2018. Pension Obligation Bonds. Researchers admitted this funding strategy is less “innovative” than others, but they argued pension bonds can help fund state plans, so long as issuers pay attention to timing risk. After all, a 30-year equity horizon has significantly less volatility than a 10-year horizon.

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