Study: State government pension funding gap increases 26 percent
The gap between the promises states have made for public employees’ government pension benefits and the money they have set aside grew to at least $1.26 trillion in fiscal year 2009, a 26 percent increase in one year, according to a report released April 25 by the Washington-based Pew Center on the States. The report’s figures are likely conservative estimates because they reflect the states’ own assumptions about the average investment returns they will achieve, according to the Pew Center.
State pension plans represented slightly more than half of the shortfall, with $2.28 trillion saved to cover $2.94 trillion in long-term liabilities, leaving about a $660 billion gap, according to the report, “The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs.” Retiree health care and other non-pension benefits accounted for the remaining $604 billion. States have amassed $635 billion in non-pension liabilities but saved just $31 billion to pay for them, which is slightly less than 5 percent of the total cost.
Pension funding shortfalls surpassed funding gaps for retiree health care and other benefits for the first time since states began reporting those liabilities in fiscal year 2006, according to the Pew Center. In all, state pension systems were just under 78 percent funded, declining 6 percentage points from the fiscal year 2008 level of 84 percent. “In many states, the bill for public sector retirement benefits already threatens strained budgets and is competing for resources with other critical needs, including education, infrastructure and health care,” said Susan Urahn, managing director, Pew Center on the States. “The $1.26 trillion shortfall for pensions and retiree health care will drive up annual costs and make already tough budget decisions even tougher.”
New York had the highest funding level at 101 percent — making it the only state with a surplus — while Illinois and West Virginia trailed all states with slightly more than half of their liabilities accounted for. The Government Accountability Office and other financial experts typically advise states to have at least an 80 percent funding level. Thirty-one states were below that threshold in fiscal year 2009, an increase from 22 states with less than 80 percent funded in fiscal year 2008.
Download the entire version of “The Widening Gap.”
