Has COVID Affected Pensions for Workers without Social Security?

At the outset of the COVID-19 pandemic, many observers feared that the resulting recession would undermine workers’ employer-sponsored retirement plans. The one-quarter of state and local government workers who are not coverd by Social Security would have been particularly vulnerable, as they lack the buffer this program provides. For this group, a prolonged recession, with poor investment returns and government revenue shortfalls, would have eroded the finances of their defined benefit plans – their only source of retirement income. This brief – based on a recent study – assesses how COVID affected the pensions of these noncovered workers.2 The discussion proceeds as follows. The first section briefly describes the universe of state and local plans for workers who are not covered by Social Security (i.e., noncovered plans). The second section documents the impact of COVID-19 on the current financial status of these plans. The third section examines the likelihood that noncovered plans will default on their future benefit promises due to depleted pension trust fund assets. The final section concludes that the impact of COVID on noncovered plans has been minimal and, looking forward, structural headwinds such as negative cash flows and lower-than-expected investment returns continue to pose little risk to their ability to pay future benefits.