U.S. state pension funds face $1 trillion shortfall
February 19, 2010
A new report warns that U.S. states currently face a total shortfall of at least $1 trillion in their funds for employees’ pensions and retirement benefits. And the problem is rapidly worsening. [Reuters]
The New York-based Pew Center released the report, which focuses on fiscal year 2008, on Thursday.
Illinois is in the worst shape, with only 54 percent of its pension obligations funded. Analysts warned that the study was conducted before the recent economic downturn, further devastating the financial portfolios of several states.
“The funding gap will likely increase when the more than 25 percent loss states took in calendar year 2008 is factored in,” the report said.
A pension fund is considered healthy if it has a funding level equal to at least 80 percent of its liability. In fiscal 2008, 21 states were below that mark. The rate of decline has been rapid, according to the Pew report. In fiscal 2000, fully half of the 50 states had fully funded their pension systems. However, by 2008, only New York, Wisconsin, Washington, and Florida could cover those costs.
Alaska and Arizona are the only states that have more than 50 percent of the assets needed to pay for other post-employment benefits, such as health care.
California, in particular, has more than $22 billion in unfunded liabilities in the California State Teachers’ Retirement System. However, the Pew study says that the California Public Employees’ Retirement System remains “in relatively good shape.”
Suggestions for solving the problem by Sacramento include raising the retirement age and eliminating automatic cost-of-living expenses.