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Cypen & Cypen

FEBRUARY 8, 2011

Stephen H. Cypen, Esq., Editor


Ten well-respected, national organizations, including National League of Cities, Government Finance Officers Association and National Association of State Retirement Administrators, have issued “Facts on State and Local Government Pensions.” The entire paper is available at:, but here are some excerpts: 

  • Retirement systems remain a small portion of state and local government budgets.  State and local government pensions are not paid out of general operating revenues, but instead, a trust that public retirees and their employers contributed to while they were working.  The portion of state and local government spending dedicated to retirement system contributions is about three percent. (Florida spent 2.37 percent.)
  • Public pension plans are not in crisis.  Most state and local government employee retirement systems have substantial assets to weather the economic crisis; those that are underfunded are taking steps to strengthen funding.  It is important to understand that pensions are funded and paid out over decades.  There is currently $2.7 Trillion already set aside in pension trusts for current and future retirees.  Further, state and local government retireesdo not draw down their pensions all at once.  
  • State and local governments are already taking steps to secure their pensions for the long-term.  More state and local governments enacted significant modifications to improve the long-term sustainability of their retirement plans in 2010 than in any other year in recent history.  
  • Public employees share in financing of their pension, which in many cases is in lieu of Social Security. The vast majority of public employees are required to contribute a portion of their wages to their state or local pension, and these contribution rates are being raised in many state and local governments.  Employee contributions along with investment returns make up a majority of public pension fund revenues.  The average retirement benefit for public employees is $22,600, and for many of them, including nearly half of all teachers and over two-thirds of firefighters and public safety officers, it is in lieu of Social Security.  State and local salaries on which these pensions are based are lower than those for private sector employees with comparable education and work experience, even when benefits are included. 
  • Pension dollars help the economy of every jurisdiction. Public employees live in every city and county in the nation; more than 90 percent retire in the same jurisdiction where they worked.  The over $175 Billion in annual benefit distributions from pension trusts are a critical source of economic stimulus to communities throughout the nation, and act as an economic stabilizer in difficult times. Recent studies have documented public retirement system pension distributions annually generate over $29 Billion in federal tax revenue, more than $21 Billion in annual state and local government tax revenue, and a total economic impact of more than $358 Billion. 
  • Long-term investment returns of public funds continue to exceed expectations.  Since 1985 -- a period that has included three economic recessions and four years of negative median public fund investment returns -- actual public pension investment returns have exceeded assumptions.  For the 25-year period ended 12.31.09, the median public pension investment return was 9.25%.  Moreover, for the year ended 6.30.10, the return was 12.8%.  These actual returns exceed the 8% average public pension investment assumption, as well as the average assumed rate of return used by the largest corporate pension plans. 
  • State and local government retirement systems do not require, and they are not seeking, Federal financial assistance. Great strides made in the ability of state and local government retirement systems to ensure that more than 20 million working and retired public employees have financial security in retirement have been achieved without Federal intervention.  One-size-fits-all Federal regulation is neither needed nor warranted, and would only inhibit recovery efforts already underway at the state and local levels. 

The facts, Ma’am, nothing but the facts. Scare-tactics must be met with facts … .




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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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