Pew Center Documents $1 Trillion in State Retirement Shortfalls

States had $1 trillion of unfunded liabilities for government workers’ pensions, healthcare and other retirement benefits at the end of fiscal year 2008, an amount that threatens big tax increases or cuts in government services, according to a report released this week by the Pew Center on the States.

The Pew Center determined that states had set aside $2.35 trillion for retirement promises but had promised $3.35 trillion in benefits.
 
The report notes every dollar spent to reduce the unfunded retirement liability is a dollar that cannot be used for education, public safety, or other core government functions.
 
The report blames government officials for setting poor policies and fiscal discipline. Examples include:

• failing to make annual payments for pension systems at the levels recommended by their own actuaries;
• expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and
• providing retiree health care without adequately funding it.

The report also notes:

• In 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four—Florida, New York, Washington and Wisconsin—could make that claim.

• In eight states—Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia—more than one-third of the total pension liability was unfunded. Two states—Illinois and Kansas—had less than 60 percent of the necessary assets on hand.

• Nine states were deemed solid performers, having enough assets to cover at least 7.1 percent—the 50-state average—of their non-pension liabilities. Only two states—Alaska and Arizona—had 50 percent or more of the assets needed.

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.

Internet Info

“The Trillion Dollar Gap: Unfunded State Retirement Systems and the Road to Reform”: http://www.heartland.org/budgetandtax-news.org/article/27085