City pension costs lower than expectedNews added by Benefits Pro on November 6, 2013

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By Paula Aven Gladych

The bankruptcy filings of cities like Detroit and Stockton, Calif., have shone a light on public pensions in the U.S. and how they impact government budgets, but a recent study by The Center for Retirement Research at Boston College found that overall pension costs borne by city residents amount to just 7.9 percent of revenue.

That figure is slightly more than the figure typically reported by the U.S. Census Bureau because the Center for Retirement Research used the full Annual Required Contribution or ARC to determine its percentage, while the census reported the amount that local governments actually paid, which was less than what they should have been contributing. That’s why many public-sector pension plans are underfunded.

Out of the 173 cities examined in the study, the Center for Retirement Research found that typical pension costs as a percentage of revenue ranged from 2.7 percent on the low end to 17.6 percent on the high end. It attempted to assign all relevant pension costs to each city. For instance, for Albuquerque, N.M., it looked at pension costs for the city of Albuquerque, its largest county and the Albuquerque School District to find a pension cost total.

Then it distilled those figures down to make sure only the amounts paid by city taxpayers from those three entities were included in the pension costs as a percentage of total revenue, which was 8.2 percent.

Among the major cities, Chicago, New York and Philadelphia had the highest pension costs. Detroit was actually No. 61 on the list because it issued Pension Obligation Bonds in 2005, which increased its overall borrowing costs but reduced its reported pension expenses, the report found. The city of Little Rock, Ark., had the highest pension costs as a percentage of revenue at 17.6 percent.

See also: Debunking 11 public pension ‘myths’

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