Benefits

Funding Gap Widens for State Pensions

By Corie Russell editors@plansponsor.com | June 19, 2012
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June 19, 2012 (PLANSPONSOR.com) - The shortfall in funding states’ retirement systems has grown to at least $1.38 trillion, according to a report from Pew Center on the States.

The report, “The Widening Gap Update,” found that state pension plans represented more than half of this shortfall, with $2.31 trillion set aside to cover $3.07 trillion in long-term liabilities—leaving about a $757 billion gap. Retiree health care and other non-pension benefits accounted for the remaining $627 billion. States had $660 billion in non-pension liabilities but saved just $33.1 billion to pay for them—which is slightly less than 5% of the total cost.

During a webinar about the research, David Draine, senior researcher at Pew, said 34 states had less than 80% of their pension promises funded in 2010, up from 31 states in 2009 and just 22 in 2008. A healthy pension plan should be at least 80% funded, he added.

“The larger [funding gaps] are, the higher the cost for taxpayers today and for many years to come,” Draine said, noting that the growing funding gap competes with other expenses like education.

Connecticut, Illinois, Kentucky and Rhode Island were the worst among the states, all under 55% funded in 2010. North Carolina, South Dakota, Washington and Wisconsin were funded at 95% or better. These numbers from 2010 do not reflect reforms made since, such as in Rhode Island.