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Public Pension Strain on States Likely to Continue, S&P Says

State pension plans are likely to continue affecting state budgets and funding, says Standard & Poors. In a study published March 24 on RatingsDirect, S&P indicated that the strains state pension plans face and cause are not likely to end any time soon.

The factors upon which S&P bases its expectations include:

  • continued budget pressures;

  • accounting and actuarial changes it expects will affect liabilities and funded ratios;

  • the gap between the funding levels of different pension systems;

  • impediments to pension funding reform; and

  • the revived interest in potentially risky pension obligation bonds as a means to finance unfunded pension liabilities.

Exacerbating the effect on states, reports Pensions & Investments, is the possible effect of these stresses on state credit ratings and Government Accounting Standards Board (GASB) rules that require that pension funds report a date by which they expect that benefit payments will exceed projected assets. Benefits paid after that date have to be discounted to a present value using a lower rate. And that could make the liabilities with which some pension funds contend even worse.

The S&P report backs others that show that state and local government pension problems stubbornly persist, even though the most recent complete report by the U.S. Census Bureau says that growth in state revenues collectively exceeded state expenditures.