States Face $1 trillion Gap in Pension Obligations
February 19, 2010
The Pew Center on the States released a report yesterday detailing a $1 trillion gap between the $3.35 trillion in pension, health care and other retirement benefits states have promised their current and retired workers and the $2.35 trillion that they actually have on hand to pay for these promised benefits. The report–The Trillion Dollar Gap: Underfunded State Retirement systems and the Roads to Reform–warns policymakers that barring reform efforts to reduce the gap, the problem will get worse as more and more Baby Boomer public sector employees are expected to retire in the coming years, and health care costs to increase.
"Policy makers that have underfunded their states' liabilities in the past now find they owe far more annually as a result–and if they postpone paying the bill any longer, the debt will increase even more significantly. This will leave their states, and tomorrow's taxpayers, in even worse shape, since every dollar needed to feed that growing liability cannot be used for education, health care or other state priorities."
While Pew found that in aggregate states' systems were 84 percent funded, a positive finding as experts recommend a minimum 80 percent funding level, 21 states had funding levels below the 80 percent level, and only four had fully funded pension systems. Pew found the problem was even worse with health care and other non-pension benefits, with only 5 percent of the total liability for current and future benefits funded as of the fiscal year 2008. Only two states had more than 50 percent of the assets needed to meet health care and other non-pension benefits, and only four contributed the "entire actuarially required contribution for non-pension benefits in 2008. While in general states fund such benefits on a pay-as-you-go basis, those states that have made "significant promises" to their workers face an "enormous" future fiscal burden.
In assessing the various state pension systems Pew determined that 16 states had solid programs, 15 need improvement and 19 are "cause for serious concern" (please see map below).
In assessing non-pension obligations, Pew determined that nine states were solidly performing, while 40 were in need of improvement (please see map below).
