Summary: State and local governments with underfunded pension plans risk tough budget choices in the future if they do not make progress toward full funding. Their taxpayers will face a liability for benefits earned by current and former government workers, forcing these governments to choose between reducing future pension benefits or raising taxes. Funding of state and local pension plans has improved significantly since the 1970s. After adjusting for inflation, the amount of the unfunded liability has been cut in half. Still, in 1992, 75 percent of state and local government pension plans in the Public Pension Coordinating Council survey were underfunded; 38 percent were less than 80 percent funded. Sponsors of slightly more than half of the plans in the survey made contributions on schedule to pay off any unfunded liability. One-third of the pension plans, however, were underfunded in 1992 and were not receiving the actuarially required sponsor contributions. Of all plans with complete data, one-fifth were underfunded and were not receiving full contributions in both 1990 and 1992.
