Most public pension plans in good shape after market drop, survey says.

• Position: NEWS & NUMBERS

Most state and local public pension plans have sufficient assets to pay benefits for decades, according to data from the Public Fund Survey 2008--the most recent survey and the first after the market downturn that started in 2008. Given the extent of the economic decline, however, many plans are evaluating benefit levels, financing structures, and asset allocation structures to ensure long-term sustainability.

Because asset values have fallen, aggregate funding levels have also decreased, from 86.7 percent in fiscal year 2007 to 85.3 percent in fiscal 2008. The analysis of survey data notes that "because public pension actuarial methods are designed to temper the effect of market volatility, public pensions will recognize the investment losses incurred in 2008 over several years. During this recognition period, funding levels are expected to decline, although losses may be partially offset with investment gains. Future funding levels will also be influenced to the extent sponsoring state and local governments consider adjustments to benefit levels and financing arrangements, such as reduced benefits for future hires, reduced future accruals, and/or higher contributions for both employers and employees."

The decline in the overall funding level was small from 2007 to 2008, but the sharp drop in asset values experienced in 2008 will drive funding levels for most plans lower in the next few years. "The impact of the decline will depend on multiple factors, particularly the plan's funding condition entering 2008, its investment experience in 2008 and in subsequent...