Great Recession: Big Impact and Lessons for Pension Plans

The Great Recession had a major impact on public pensions, and its effects linger still. But the lessons the recent economic unpleasantness taught may benefit them and last longer, argues a recent National Public Pension Coalition blog entry.

Public pensions are not alone in struggling with funding levels. For instance, earlier this year

Standard & Poors said that pension funding for the S&P 1500 stood at 78%. And while the blog entry concerns public pensions, the principles it articulates regarding the effect of the recession on funding and its import for their administration still may be worth  private-sector pensions' consideration.

“Public pensions would be in a much better place than they are today if the Great Recession had never happened,” Tyler Bond writes in “The Great Recession and Public Pensions.” Many suffered steep investment losses in the years immediately following the recession, says Bond, and they are still recovering now.

Bond cites statistics from a Pew Charitable Trust report to illustrate the dramatic effect the Great Recession had. Its findings include data that show that on the precipice in 2007, some states’ public pension plans were over 100% funded, and many were more than 80% funded; however, once the wave broke, in 2008-2009 almost all plans’ funded ratios fell. Most dramatic were Florida, with a 17.3 percentage point drop from 101.4% to 84.1%, and Oregon, with a whopping 32 percentage point slide from 112.2% to 80.2% in just two years’ time.

Still, he says, while the recovery from the recession has been slow, public pensions are getting better and making up at least some of the lost funding status ground.

Bond says that the effect of the recession on funded ratios evoked panic among politicians, and argues that they were wrong to then call for “dramatic changes to public pensions.” Rather, he posits that states and plans should be patient and hold steady, and that states should make it a top priority to fully pay the contributions they are supposed to pay to their pension plans. This, Bond argues, is the “most important thing states can do to have well-funded public pensions” and that it particularly important “during a recession when investment revenue is likely to decrease significantly.”