The TEXPERS Blog

Public pensions do not comprise a significant portion of state and local spending in Texas

Credit: iStock/BananaJazz

By Allen Jones, 

TEXPERS Communications Manager

On average, state and local government contributions to pensions made up less than 3 percent of all state and local direct general spending in Texas between 2006 and 2015, according to an updated issue brief from the National Association of State Retirement Administrators. 

The brief, "State and Local Government Spending on Public Employee Retirement Systems," highlights where funds for public pensions come from and how much is contributed by state and local governments across the United States. The brief indicates that Texas' percentage of state and local government contributions to pension systems remained relatively flat during the timeframe (2.78 percent in the 2006 fiscal year and 2.78 percent during the 2015 fiscal year). There were only slight variances during the study's timeframe, according to the report. 

NASRA is a nonprofit association whose members are the directors of the nation's state, territorial and largest statewide public retirement systems, according to its website. The organization released the brief last month. 

In Texas and most other states, police officers, firefighters and municipal employees and their employers contribute to trust funds during a retiree's working years to pay for retirement benefits. Texas' percentage of state and local spending on pensions between 2006 and 2015 (2.78 percent) is 1.92 percent less than the national average. Nationwide, contributions made by state and local governments to pension trust funds account for approximately 4.7 percent of direct general spending, according to the NASRA report. 

"Pension spending levels, however, vary widely among state, depending on various factors, and are sufficient for some pension plans and insufficient for others," according to the issue brief. "

Although state and local government spending on public pensions make up roughly 4.7 percent of total government general spending nationwide, spending varies by states and local governments from 1.88 percent to nearly 9 percent. The higher percentages of state and local government spending on public pensions are primarily because those governments have failed to adequately fund pension costs and assume a conservative 5 percent investment return, according to another study published by the Center for Retirement Research at Boston College. 

According to the NASRA report, differences in benefit levels, disparities in the size of unfunded pension liabilities, the level of commitment by state and local government plan sponsors to make required pension contributions, and even urbanization can contribute to the differences in pension cost levels. However, the report's author's, NASRA Research Director Keith Brainard and Research Manager Alex Brown, indicate "nearly every state and many cities have taken steps to improve the financial condition of their retirement plans and to reduce costs" after an investment market decline during the 2008 and 2009 fiscal years. 

"States and cities changed their pension plans by adjusting employee and employer contribution levels, restructuring benefits,  or both," according to a synopsis of the brief on the association's website. 

Nationwide, government employers contributed $141 billion to pension benefits for employees, which is a relatively small portion of the total state and local government spending. Although the contributions are increasing among many government employers, retirement trusts across the U.S. pay out a total of more than $280 billion each year from to retirees and their beneficiaries, according to the NASRA issue brief.

The report's findings are based on the most recent information provided by the U.S. Census Bureau.