NCPA Estimates Unfunded Public Pension Liabilities at $2.5T

A study report said the Center analyzed 153 state and local pension plans, repre­senting more than 85% of liabilities for state and local pensions and other benefits, and recalculated their liabilities using a lower discount rate. It found unfunded pension liabilities are approximately $2.5 trillion, compared to the reported amount of $493 billion.  

Unfunded liabilities for health and other benefits are $558 billion, compared to the reported $537 billion.  Thus, total unfunded liabilities for all benefit plans are an estimated $3.1 trillion — nearly three times higher than the plans report.  

According to NCPA calculations Conncecticut topped the list of the 10 worst states, with only 27% of retirement benefits funded. The other nine on the list are: 

• Hawaii – 31% funded; 
• Illinois – 31%; 
• New Hampshire – 32%; 
• West Virginia – 33%; 
• New Jersey – 34%; 
• Kentucky – 35%; 
• Oklahoma – 35%; 
• Kansas – 36%; and 
• Rhode Island – 36%. 

The study report said state and local govern­ments’ reported unfunded obligations under pension and other benefit plans amounting to 7.1% of U.S. gross domestic product (GDP) in 2008. When adjusted using a more appropriate discount rate, however, states’ unfunded obligations were 22% of U.S. GDP. All but 10 states and the District of Columbia have total adjusted unfunded liabilities above 15% of their state GDP, and four states — Alaska, Hawaii, New Jersey and Ohio — have adjusted unfunded liabilities above 35% of their state GDP.  

NCPA contends many state and local government pension plans’ liabilities are calculated using discount rates that are not commensurate with the risk they may pose to taxpayers. Accounting standards allow pension funds to calculate their liabilities using a discount rate comparable to the expected rate of return on the funds’ assets, but the Center says this typically high discount rate tends to reduce the size of a pension plan’s accrued liabilities.