States Have Unfunded Liabilities of $4.7 Trillion
State-level public pension plans are underfunded by a massive
$4.73 trillion this year, according to a new report from State Budget
Solutions — an amount equal to more than $15,000 for each American.
"This spells trouble for the millions of baby boomers who are quickly
approaching retirement age and expect to collect the pensions promised
to them by government officials," writes Joe Luppino-Esposito, author of
the "Promises Made, Promises Broken 2014" report.
"State taxpayers who are not government employees will also feel the
pinch, which could result in reduced government services as larger and
larger portions of the states' budgets must be allocated to cover the
public pension shortfall."
California carries the largest unfunded liability, $754 billion,
followed by Illinois ($331 billion), New York ($307 billion), Texas
($296 billion), and Ohio ($289 billion).
But these large states have larger numbers of public sector
employees, so simply looking at the total figures can be misleading. A
better indicator of pension plan health is the funding ratio, which
compares assets to liabilities.
By this yardstick, the Illinois pension plan is in worst shape, with a
funding ratio of just 22 percent — it has assets of $95 billion, about
22 percent of its liabilities of $426.6 billion. Other states with low
ratios are Connecticut (23 percent), Kentucky (24 percent), Alaska (25
percent), and Mississippi (27 percent).
The most well-funded state is Wisconsin, with a funding ratio of 67 percent.
On a per-capita basis, Alaska has an unfunded liability of $40,639
for each resident. Illinois has a liability of $25,740 per person,
followed by Ohio ($25,028), Connecticut ($24,080), and New Jersey
($22,491). The lowest figure is in Tennessee, $6,500.
One reason for the huge unfunded liability numbers is that officials
rely on overly optimistic returns on the investment of assets,
Also, states are often guilty of not making the necessary annual contributions to the pension funds.
"State Budget Solutions found that in recent years several states
have reduced the annual required contribution to the pension funds, or
just skipped the payments altogether," the report notes. "New Jersey is
the latest state to pull off this budget gimmick, reducing this year's
payment by a whopping $4.2 billion as a way of 'balancing' the state's