State and Local Government Contributions to Statewide Pension Plans: FY 21

Introduction

Pension benefits for employees of state and local governments are paid from trust funds to which public employers and employees contribute during employees’ working years. Timely contributions are vital to both adequate funding and the sustainability of these plans: failing to pay required contributions results in higher future costs due to foregone principal and investment earnings that the contributions would have generated.

According to the US Census Bureau, on a national basis, contributions made by employers—states and local governments—in 2021 accounted for 76 percent of all contributions received by public pension plans.The remaining contributions were paid by public employees.  A 2022 NASRA issue brief finds that contributions made by state and local governments to pension trust funds in recent years account for 5.0 percent of all non-federal spending.

Funding a pension plan takes place over many years and typically involves a combination of contributions from employees and employers, which are invested to generate investment earnings. The amount of contributions needed to fund a pension plan is calculated as part of an actuarial valuation, a mathematical process that determines a pension plan’s condition and cost needed to pay promised benefits. Contributions are a vital source of public pension funding: of the $10+ trillion in public pension revenue since 1992, 36 percent, or more than $3.5 trillion, came from contributions paid by employers and employees.  Of course, contributions provide the basis for investment earnings. 

Date  Published

December 2022

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager

Download Issue Brief