What can cities do to address pension funding challenges? Because of a combination of budget constraints and lower investment returns over the last decade, the average funded ratio for state and local pension plans has declined to 75 percent in 2011 after being fully funded at the turn of the century.

Think long term, urged Center for State and Local Government Excellence President & CEO Elizabeth Kellar, speaking on a panel at the National League of Cities Congress of Cities in Boston in December. “When change is needed,” she said, “communication is essential. Keep employees and the public fully informed.”

Kellar added that long-term financial modeling to analyze pension benefits is important, along with annual briefings by the plan sponsor and actuary and training for elected officials and trustees. 

Moderator Kathie Novak from the Center for Priority Based Budgeting noted that elected officials should not be afraid to ask questions. Councilmember Pete Constant of San Jose, CA, agreed, noting that he had raised tough questions about the need to revamp San Jose’s pension plan for years.  San Jose voters passed a referendum this fall to reduce benefit levels, which still faces legal challenges.

Kellar stressed that the situation varies across the country so solutions need to be tailored to each locality.  “Plans that are well funded have consistently funded the annual required contribution, have appropriate full-retirement ages, and are realistic about investment assumptions,” she said. 

When local governments make changes to their benefits, they need to focus on what is important to current and future employees, she added.  “Flexibility is the key to the future, including giving employees more ways to save for retirement.”