Arabic
Chinese (Simplified)
English
French
German
Portuguese
Russian
SpanishUS. Public Pensions Face a COVID-19 Conundrum
Faced with depleting assets, and with state and local governments under fiscal pressure from the COVID-19 recession, public pension plan sponsors have some tough choices ahead of them in order to remain sustainable during economic uncertainty.
However, there are widely differing views among economic scholars as to what the most prudent strategy is for state and local governments dealing with low returns on pension investments, aging workforces, and pressure to build portfolios to cover promised future benefits—as well as other budgetary responsibilities.
Those conflicting views were on display at the 2020 Municipal Finance Conference, which was organized by thinkthank the Brookings Institution and held virtually earlier this week.
Louise Sheiner and Finn Schuele of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy and Jamie Lenney of the Bank of England expanded on their presentations from last year’s conference, which argued that state and local government pension liabilities can be stabilized as a share of the economy with relatively modest fiscal adjustments.
They examined how the change in the economic landscape, such as lower interest rates, has affected pension sustainability. And, considering the fiscal distress most state and local governments are currently dealing with, they also looked into how reducing or putting a moratorium on pension contributions in the near-term to avoid bigger cuts to core services would affect that sustainability.
The three noted that pension contributions in 2019 for the US as a whole represented 4.7% of revenues raised from taxes and fees, which is a significant source of funds considering gross domestic product (GDP) is expected to be down approximately 6% in 2020, with state and local revenue down even more than that.
They argued that cutting back on pension contributions could “go a long way” toward mitigating spending cuts and considered the sustainability implications of putting a moratorium on pension contributions for three years.
Read more @AI CIO
