Gap widens for pension promises
States are creating an ever-widening gap between their promises for public employees’ retirement benefits and the money they have set aside to pay those bills, according to a new report, “The Widening Gap Update,” from the Pew Center on the States. How big a gap? Try $1.38 trillion in fiscal year 2010 — and many states are still digging.
“Like the credit card holder who makes little or no monthly payments, buying new purchases, states have built up a substantial balance that requires bigger dollar amounts to pay off with each passing year,” David Draine, senior researcher with the Pew Center, said in a conference call with reporters.
The problem, according to the report, is that states have failed to keep up the payments on their retirement bills by not making the annual required contributions into retirement funds. And the gap is widening: The $1.38 trillion shortfall in 2010 was a 9 percent increase from the year before.
More than half of the shortfall — $757 billion — comes in state pension plans. Experts recommend that pension systems should be at least 80 percent funded — 34 states missed that benchmark. Only Wisconsin had fully funded its pension plan in 2010.
The worst states were Connecticut, Illinois, Kentucky and Rhode Island, with pensions funded under 55 percent. The best states were North Carolina, South Dakota, Washington and Wisconsin, with pensions funded at 95 percent or better.
The report found that states only have 5 percent of the funds they need to pay for retiree health care and other non-pension benefits. Seventeen states did not set aside any money for retiree health care.
Government officials are beginning, slowly, to try to bridge the gap. Over the last three years, state and local governments have made changes to employee retirement plans. Those changes include cutting benefits and/or increasing employee contributions for future workers. Some governments also have cut benefits for current workers, including Rhode Island and the California cities of San Jose and San Diego.
Much work remains to be done, Draine said. “There are no quick fixes to this problem.”