As explained in the Pension Basics page, an employer and employee who are a part of a defined benefit agreement are expected to contribute whatever is required to keep a pension program funded. Since this depends largely on how a certain fund's investments are faring, it can vary significantly from year to year. Additionally, investment gains and losses are usually smoothed over a few years so that a down year in the market is not completely felt in that one year. Also, much like a home mortgage, the amount of money owed is typically amortized over 30 years.
Lansing Police & Fire
One can evaluate the cost of a pension in two ways. First, you can simply use the raw number--the Lansing Police and Fire Retirement System needed to contribute $2.64 million to its pension fund to reach its annual required contribution in 2003. Or you can look at what it costs as a percentage of payroll-- Lansing needed to contribute 10% of payroll to attain its annual required contribution.As baby boomers have begun to retire, municipalities are now coming to terms with the promises they made to their employees in the past. Consequently, contributions--both in raw numbers and as a percent of payroll--have been rapidly increasing over the past several years. To keep with the example of the city of Lansing Police & Fire, in 2007 it had to contribute $5.39 million--18% of payroll--to meet its annual required contribution. Even though annual contributions doubled in five years, the fund went from being 4% overfunded to 7% underfunded. The city is putting exponentially more money into the plan, yet it's funded status is perpetually decreasing!
All of this added money that is pouring into the pension fund is taxpayer money that should be spent on fairly compensated public servants. Due to unsustainable pensions, younger generations are being robbed of job opportunities and the average citizen is paying more for less.
See details on a few other expensive plans here.