Groups Dissect Pew Report on State Retiree Benefit Funding

However, in a statement, the groups said that coupling retiree health care with pension liabilities distracts from the issues states face with the different benefits. “When properly dissected, it is clear that the vast majority of the ‘financing gap’ is not attributable to pensions, but rather to health care programs that until recently were funded primarily on a pay-as-you-go basis,” the groups said.

Pew’s report, “The Trillion Dollar Gap,” indicated there was a $1 trillion gap at the end of fiscal year 2008 between what states had set aside to pay for employees’ retirement benefits and what they owed (see States Face $1 Trillion Retirement Benefits Funding Gap). The figures in the Pew report include pension, health care, and other non-pension benefits promised to both current and future retirees in states’ and participating localities’ public sector retirement systems. 

NASRA and NCTR noted that in contrast to the assets currently held in trust to pay pensions, states currently have set aside just 5% of their future retiree health care obligations. “Retiree health care cost containment options, financing structures and benefit protections are entirely different from those of pensions, and mired in a debate over the nation’s health care system,” the groups said in their statement.

The Pew report pointed out that some states are taking steps to reform their retirement benefits policy to, among other things, manage costs.

NCTR and NASRA said the report “provides an important contribution to ongoing discussions concerning ways in which the public pension process can be improved to the benefit of public pension plan sponsors, their participants and beneficiaries, and taxpayers.”

According to the statement, public pension funds distribute more than $165 billion in benefits annually to more than 7.5 million Americans, paying an average yearly benefit of some $22,000. “These benefit payments provide an important source of economic stimulus that reaches every city and town of every state, and are estimated to support 2.5 million jobs and to add more than $350 billion annually in economic output,” the groups said.