Report

The Widening Gap

The Great Recession's Impact on State Pension and Retiree Health Care Costs

Quick Summary

Please see our updated Widening Gap report  for the latest state retiree benefits data.The gap between the promises states have made for public employees' retirement benefits and the money set aside to pay for them grew to at least $126 trillion in fiscal year 2009—a 26 percent increase in one year—according to a Pew report.

 


The Widening Gap: The Great Recession's Impact on State Pension and Retiree Health Care Costs analyzes 2009 data on states' funding of pensions and retiree health care. The report shows how states' retirement systems—many of them already on shaky ground—were affected by the Great Recession:

The Widening Gap is a follow-up study to Pew's 2010 report, The Trillion Dollar Gap. It covers pension, health care and other benefits promised to current and future retirees.

  • Pension funding shortfalls accounted for $660 billion of the $1.26 trillion gap, and unfunded retiree health care costs accounted for the remaining $607 billion.
  • States had only about $31 billion, or 5 percent, saved toward their obligations for retiree health care benefits.
  • State pension plans were 78 percent funded, declining from 84 percent in 2008.

Report Contents A

Frequently Asked Questions: The Widening Gap

Q: Why does Pew's report, The Widening Gap, primarily use data from fiscal year 2009?

A: In The Widening Gap, we studied official state data available on or before February 1, 2011. By that date, 49 states had released pension data for fiscal year 2009, and 16 states had released complete fiscal year 2010 pension data. For retiree health care and other benefits, the most recent data available ranged from 2007 to 2010.

The main data sources for The Widening Gap are the Comprehensive Annual Financial Reports produced by each state and pension plan and other state documents that disclose financial details about public employee retirement systems. The states set their own timetables for releasing this information, and in some cases there is a significant lag time.

Q: Why are pension and retiree health care data from 2010, 2009 and earlier relevant today?

A: While data that are a year or two old cannot tell us a state's exact retirement fund balance today, these numbers do tell us whether a state is generally on track to save enough for the retirement benefits it has promised.

When a state falls far behind on its retirement savings—as too many have in the past decade—it faces the same basic choices as an individual: put more dollars aside in future years to catch up; reduce the expected benefits; or both.

Q: Are underfunded state retirement systems a passing problem caused by the 2008 Wall Street collapse and the recession?

A: No. Even before the full effects of the recession were seen, the states were at least $1 trillion, or about one-third, short of the amount needed to pay the retirement benefits they had promised to current employees and retirees (see Pew's 2010 report, The Trillion Dollar Gap). Going back even further, Pew found substantial shortfalls in states' pension and retiree health care funds at the end of fiscal year 2006 (see Pew's 2007 report, Promises with a Price).

The economic recession and investment losses have played a role, but to a significant degree the problem reflects many states' own policy choices and lack of discipline over the last decade. Too often, policy makers have kicked the can down the road, failing to make payments toward past promises and providing additional benefits without understanding the costs or figuring out how to pay for them.

Q: Some states are reporting that their retirement fund investments made strong gains more recently. Will these gains fix the problem of underfunded pension and retiree health care systems?

A: No, for many states, investment gains alone will not fix the problem. A number of pension plans have reported strong investment gains in 2009 and 2010, and those will help put some retirement systems back on solid financial footing. But even states with well-funded systems cannot sit back and hope that investment gains will close the entire pension and retiree health care shortfall.

Consider a pension plan that expects, on average, an 8 percent annual return on its investments, but in calendar year 2008 experienced a 25 percent loss (the median investment decline for public sector pension plans that year). The plan's investments would need to earn an average annual return of 15 percent for six years in order to accumulate as much value as would have been accrued had the 2008 losses not occurred.

Q: When complete 2010 data are released, will they show that state retirement systems have recovered due to investment gains?

A: Most states will experience continuing declines in funding levels in 2010 despite strong investment returns. This is because of a practice called smoothing, in which states acknowledge investment gains and losses over time to keep their funding levels from fluctuating wildly because of the market.

The typical smoothing period is five years, which means that the investment losses experienced in fiscal year 2009 will only be fully accounted for in 2013. We saw a similar pattern following the 2001 recession; state funding levels didn't start to recover until 2007 despite strong investment gains in 2004, 2005 and 2006.

Q: Why do you include retiree health care costs in your analysis? Aren't these benefits fundamentally different from pensions?

A: Examining retiree health care plans is vital to getting a full picture of states' long-term retirement costs. The annual bills for these benefits can escalate quickly, especially as the cost of medical care rises and larger numbers of “baby boomers” retire.

As of 2009, the 50 states had set aside just 5 percent of the $638 billion they have promised in retiree health care benefits in coming years; 19 states had nothing saved.

Retiree health care benefits can be changed more easily than pensions, in general, but both are bills that will come due eventually. And for both of these promises, it is fiscally prudent for states to set aside money each year, because any investment gains can help manage the cost to future taxpayers and employees.

Q: Are all state retirement systems in serious financial trouble?

A: No. Pew studied nearly 400 state pension and retiree health care plans and found some that have been managed responsibly. In fiscal year 2009, New York and Wisconsin had fully funded pension systems, for example, while Arizona and Oregon had saved a larger portion of their retiree health care costs than the rest of the states.

The bad news is that, in 2009, 31 states had pension systems below the 80 percent funded level recommended by most experts. And 19 states had no money set aside to cover retiree health care costs.

Almost all states have room to improve their management of long-term retirement bills and deliver better results for public employees and taxpayers.

Q: Why are some estimates of states' unfunded retirement liabilities bigger than Pew's?

A: Pew's analysis uses states' own data and assumptions about key factors, including the average return each state expects to earn on its investments. For this reason, we consider our figures conservative estimates. Other researchers have used different data and assumptions that led to different estimates.

Q: Why should states make it a priority to save for long-term retirement bills when they have historic budget shortfalls right now?

A: Policy makers that put off or shortchange their annual contributions are simply adding to the bill for future taxpayers. The consequences are similar to what happens when a credit card holder makes little or no monthly payment while charging new purchases.

Policy makers failing to make full annual retirement contributions is a major reason why states' annual pension bills shot up 152 percent over the last decade. It's a difficult choice in tight budget times like these, but policy makers and taxpayers should, at a minimum, fully understand the effects of making little or no payment today.

Estimating States' Pension Gap

States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits.

The most common assumption made by states is that a plan's investments will generate a return of 8 percent. But, some experts argue that an 8 percent return is overly optimistic and takes on too much risk, increasing the chance that the states' pension plans will be underfunded. Most states have exceeded an 8 percent return over time, but the return has been much lower in recent years.

For example, from 1984 to 2009, the median investment return for public pension plans was 9.3 percent. But from 2000 to 2009 the median return was only 3.9 percent.

The stakes of this debate are high because when a state lowers its investment return assumptions, its liability jumps and the annual contributions required to pay for the states' pension promises increase dramatically. That takes money away from other state programs and initiatives.

While there is no consensus about the appropriate return rate, we can illustrate the impact of different return rates. Pew presents four different assumptions in the table below:

 Current Assumptions:

Using the state's own rate of return assumptions for each of the state's pension plans.

8% rate of return:

Less than half the plans use a different rate of return assumption than 8 percent. We re-estimate liabilities for all plans using an 8 percent assumption to facilitate comparisons.

 5.22% rate of return:

Defined-benefit pension plans in the private sector use the interest rate for a high-end corporate bond, 5.22 percent as of March 2011.

 4.38% rate of return:

Some experts suggest using a riskless rate—such as a rate based on a 30-year treasury bond, 4.38 percent as of mid-March 2011.

 

View tables that show the impact of each rate of return on the next five pages.

 

Estimating the States' Pension Gap: Current Rates of Return

States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits. The table below illustrates the impact of using each state's own rate of return assumptions.

Using their own assumptions, state-run pension systems were slightly less than 78 percent funded. Overall, states faced a $660 billion funding gap.

 

Latest
Assets
Latest
Liability
Funding
Gap
 Pct.
Funded
Alabama
$30,763,098
$41,634,554
$10,871,456
74%
Alaska
$9,375,500
$15,347,768
$5,972,268
61%
Arizona
$34,209,571
$44,078,394
$9,868,823
78%
Arkansas
$17,597,153
$22,698,906
$5,101,753
78%
California
$395,898,000
$490,585,000
$94,687,000
81%
Colorado
$37,598,988
$54,536,549
$16,937,561
69%
Connecticut
$25,452,900
$41,311,400
$15,858,500
62%
Delaware
$7,185,650
$7,615,166
$429,516
94%
Florida
$119,039,831
$141,485,280
$22,445,449
84%
Georgia
$69,555,937
$79,898,410
$10,342,473
87%
Hawaii
$11,380,961
$16,549,069
$5,168,108
69%
Idaho
$8,930,900
$12,057,500
$3,126,600
74%
Illinois
$63,996,419
$126,435,510
$62,439,091
51%
Indiana
$24,561,131
$36,924,845
$12,363,714
67%
Iowa
$21,517,286
$26,602,516
$5,085,230
81%
Kansas
$13,461,221
$21,138,206
$7,676,985
64%
Kentucky
$20,767,783
$35,686,737
$14,918,954
58%
Louisiana
$23,806,648
$39,657,924
$15,851,276
60%
Maine
$10,466,900
$14,410,000
$3,943,100
73%
Maryland
$34,420,515
$53,054,565
$18,634,050
65%
Massachusetts
$41,370,451
$61,140,335
$19,769,884
68%
Michigan
$57,509,500
$72,911,900
$15,402,400
79%
Minnesota
$46,879,567
$60,835,351
$13,955,784
77%
Mississippi
$21,094,468
$31,386,747
$10,292,279
67%
Missouri
$43,890,593
$55,314,996
$11,424,403
79%
Montana
$7,631,980
$10,271,027
$2,639,047
74%
Nebraska
$8,260,397
$9,427,370
$1,166,973
88%
Nevada
$24,015,893
$33,148,347
$9,132,454
72%
New Hampshire
$4,937,319
$8,475,062
$3,537,743
58%
New Jersey
$89,119,531
$134,928,225
$45,808,694
66%
New Mexico
$22,086,971
$29,003,362
$6,916,391
76%
New York
$148,861,000
$146,733,000
-$2,128,000
101%
North Carolina
$74,447,112
$76,976,542
$2,529,430
97%
North Dakota
$3,642,100
$4,475,800
$833,700
81%
Ohio
$113,056,948
$171,194,371
$58,137,423
66%
Oklahoma
$19,982,363
$34,815,244
$14,832,881
57%
Oregon
$48,729,200
$56,810,600
$8,081,400
86%
Pennsylvania
$89,986,600
$111,317,700
$21,331,100
81%
Rhode Island
$6,752,084
$11,500,425
$4,748,342
59%
South Carolina
$28,871,570
$42,050,701
$13,179,131
69%
South Dakota
$6,874,347
$7,494,895
$620,547
92%
Tennessee
$31,639,654
$35,198,741
$3,559,087
90%
Texas
$130,983,262
$155,679,204
$24,695,942
84%
Utah
$20,818,430
$24,299,183
$3,480,753
86%
Vermont
$2,923,124
$4,012,955
$1,089,831
73%
Virginia
$55,123,000
$69,135,000
$14,012,000
80%
Washington
$57,162,100
$57,754,700
$592,600
99%
West Virginia
$7,977,030
$14,266,419
$6,289,389
56%
Wisconsin
$78,911,300
$79,104,600
$193,300
100%
Wyoming
$6,571,160
$7,401,614
$830,454
89%
Source: Pew Center on the States, 2011

 

Report Contents B

Estimating the States' Pension Gap: 8 Percent Rate of Return    

States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits. The table below illustrates the impact of an 8% rate of return.
The most common assumption made by states is that a plan's investments will generate a return of 8 percent.

Using an 8 percent assumption reduced estimated unfunded liabilities by over $20 billion. Overall, 23 states had their liabilities go down when revalued at 8 percent, reducing their funding gap by more than $40 billion. But 12 states faced a funding shortfall that was $20 billion larger than when the states' own assumptions were used.

 

Liability
Using 8%
Funding
Gap
 Pct.
Funded
Using 8%
Reported
Pct.
Funded
Increase
in the
Funding Gap
Alabama
$41,634,554
$10,871,456
74%
74%
$0
Alaska
$15,742,832
$6,367,332
60%
61%
$395,064
Arizona
$44,595,941
$10,386,370
77%
78%
$517,547
Arkansas
$22,689,402
$5,092,249
78%
78%
-$9,504
California
$481,311,870
$85,410,283
82%
81%
-$9,277,248
Colorado
$54,536,549
$16,937,561
69%
69%
$0
Connecticut
$43,495,679
$18,042,779
59%
62%
$2,184,279
Delaware
$7,615,166
$429,516
94%
94%
$0
Florida
$137,750,567
$18,710,736
86%
84%
-$3,734,713
Georgia
$75,683,734
$6,127,797
92%
87%
-$4,214,676
Hawaii
$16,549,069
$5,168,108
69%
69%
$0
Idaho
$11,739,224
$2,808,324
76%
74%
-$318,276
Illinois
$133,025,760
$69,029,341
48%
51%
$6,590,250
Indiana
$34,498,019
$9,936,888
71%
67%
-$2,426,826
Iowa
$25,222,057
$3,704,771
85%
81%
-$1,380,459
Kansas
$21,138,206
$7,676,985
64%
64%
$0
Kentucky
$34,115,628
$13,347,845
61%
58%
-$1,571,109
Louisiana
$40,481,762
$16,675,114
59%
60%
$823,838
Maine
$14,029,627
$3,562,727
75%
73%
-$380,373
Maryland
$51,645,213
$17,224,698
67%
65%
-$1,409,352
Massachusetts
$62,756,094
$21,385,643
66%
68%
$1,615,759
Michigan
$72,893,855
$15,384,355
79%
79%
-$18,045
Minnesota
$64,051,930
$17,172,363
73%
77%
$3,216,579
Mississippi
$31,386,747
$10,292,279
67%
67%
$0
Missouri
$55,918,814
$12,028,221
78%
79%
$603,818
Montana
$10,156,704
$2,524,724
75%
74%
-$114,323
Nebraska
$9,403,318
$1,142,921
88%
88%
-$24,052
Nevada
$33,148,347
$9,132,454
72%
72%
$0
New Hampshire
$8,978,099
$3,990,179
56%
58%
$448,106
New Jersey
$138,483,297
$49,363,767
64%
66%
$3,555,073
New Mexico
$29,003,362
$6,916,391
76%
76%
$0
New York
$146,733,000
-$2,128,000
101%
101%
$0
North Carolina
$70,888,208
-$3,558,904
105%
97%
-$6,088,334
North Dakota
$4,472,049
$829,949
81%
81%
-$3,751
Ohio
$171,194,371
$58,137,423
66%
66%
$0
Oklahoma
$34,030,261
$14,047,898
59%
57%
-$784,983
Oregon
$56,810,600
$8,081,400
86%
86%
$0
Pennsylvania
$111,317,700
$21,331,100
81%
81%
$0
Rhode Island
$11,804,348
$5,052,264
57%
59%
$303,922
South Carolina
$42,050,701
$13,179,131
69%
69%
$0
South Dakota
$7,298,485
$424,138
94%
92%
-$196,410
Tennessee
$33,341,992
$1,702,338
95%
90%
-$1,856,749
Texas
$155,679,204
$24,695,942
84%
84%
$0
Utah
$23,657,770
$2,839,340
88%
86%
-$641,413
Vermont
$4,109,308
$1,186,184
71%
73%
$96,353
Virginia
$65,488,098
$10,365,098
84%
80%
-$3,646,902
Washington
$57,737,540
$575,440
99%
99%
-$17,160
West Virginia
$13,513,859
$5,536,829
59%
56%
-$752,560
Wisconsin
$77,433,896
-$1,477,404
102%
100%
-$1,670,704
Wyoming
$7,401,614
$830,454
89%
89%
$0
Source: Pew Center on the States, 2011

 

Estimating the States' Pension Gap: 5.22 Percent Rate of Return

States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits. The table below illustrates the impact of a 5.22% rate of return.
Defined-benefit pension plans in the private sector use the interest rate for a high-end corporate bond, 5.22 percent as of March 2011.

Private sector plans are required to use rules set by the Financial Accounting Standards Board (FASB), basing the return assumptions on the rate on high-quality corporate bonds. Based on the FASB rate, no state is more than 80 percent funded and only four—North Carolina, Wisconsin, New York and Washington—are more than 70 percent funded. Illinois and New Hampshire would both have state-run pension systems that were less than 40% funded and the total funding gap would be over $1.8 trillion.

Alabama
$58,530,840
$27,767,742
53%
74%
$16,896,286
Alaska
$22,131,646
$12,756,145
42%
61%
$6,783,878
Arizona
$62,694,027
$28,484,456
55%
78%
$18,615,633
Arkansas
$31,897,298
$14,300,145
55%
78%
$9,198,392
California
$676,639,597
$280,738,010
59%
81%
$186,050,479
Colorado
$76,668,769
$39,069,781
49%
69%
$22,132,220
Connecticut
$61,147,253
$35,694,353
42%
62%
$19,835,853
Delaware
$10,705,580
$3,519,930
67%
94%
$3,090,414
Florida
$193,653,002
$74,613,171
61%
84%
$52,167,722
Georgia
$106,397,981
$36,842,044
65%
87%
$26,499,571
Hawaii
$23,265,072
$11,884,111
49%
69%
$6,716,003
Idaho
$16,503,279
$7,572,379
54%
74%
$4,445,779
Illinois
$187,010,755
$123,014,336
34%
51%
$60,575,245
Indiana
$48,498,131
$23,937,000
51%
67%
$11,573,286
Iowa
$35,457,764
$13,940,478
61%
81%
$8,855,248
Kansas
$29,716,589
$16,255,368
45%
64%
$8,578,383
Kentucky
$47,960,556
$27,192,773
43%
58%
$12,273,819
Louisiana
$56,910,217
$33,103,569
42%
60%
$17,252,293
Maine
$19,723,181
$9,256,281
53%
73%
$5,313,181
Maryland
$72,604,060
$38,183,545
47%
65%
$19,549,495
Massachusetts
$88,224,000
$46,853,548
47%
68%
$27,083,664
Michigan
$102,475,904
$44,966,404
56%
79%
$29,564,004
Minnesota
$90,045,717
$43,166,149
52%
77%
$29,210,366
Mississippi
$44,124,230
$23,029,762
48%
67%
$12,737,483
Missouri
$78,611,989
$34,721,396
56%
79%
$23,296,993
Montana
$14,278,534
$6,646,554
53%
74%
$4,007,507
Nebraska
$13,219,407
$4,959,010
62%
88%
$3,792,037
Nevada
$46,600,729
$22,584,836
52%
72%
$13,452,382
New Hampshire
$12,621,624
$7,633,704
40%
58%
$4,091,631
New Jersey
$194,683,091
$105,563,560
46%
66%
$59,754,866
New Mexico
$40,773,611
$18,686,640
54%
76%
$11,770,249
New York
$206,280,718
$57,419,718
72%
101%
$59,547,718
North Carolina
$99,656,318
$25,209,206
75%
97%
$22,679,776
North Dakota
$6,286,913
$2,644,813
58%
81%
$1,811,113
Ohio
$240,669,091
$127,612,143
47%
66%
$69,474,720
Oklahoma
$47,840,545
$27,858,182
42%
57%
$13,025,301
Oregon
$79,865,684
$31,136,484
61%
86%
$23,055,084
Pennsylvania
$156,493,052
$66,506,452
58%
81%
$45,175,352
Rhode Island
$16,594,831
$9,842,747
41%
59%
$5,094,406
South Carolina
$59,115,869
$30,244,299
49%
69%
$17,065,168
South Dakota
$10,260,383
$3,386,035
67%
92%
$2,765,488
Tennessee
$46,872,960
$15,233,306
68%
90%
$11,674,219
Texas
$218,857,503
$87,874,241
60%
84%
$63,178,299
Utah
$33,258,652
$12,440,222
63%
86%
$8,959,469
Vermont
$5,776,962
$2,853,838
51%
73%
$1,764,007
Virginia
$92,064,716
$36,941,716
60%
80%
$22,929,716
Washington
$81,168,797
$24,006,697
70%
99%
$23,414,097
West Virginia
$18,998,102
$11,021,072
42%
56%
$4,731,683
Wisconsin
$108,858,400
$29,947,100
72%
100%
$29,753,800
Wyoming
$10,405,364
$3,834,204
63%
89%
$3,003,750
Source: Pew Center on the States, 2011

Estimating State Pension Funding: 4.38 Percent Rate of Return

States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees' pension benefits. The table below illustrates the impact of a 4.38 percent rate of return.

Some experts suggest that states should use a risk-free rate to discount future costs rather than their assumed rate of return or the FASB rate. We use a 30 year Treasury bond rate—4.38 percent as of mid-March 2011—to recalculate what liabilities would look like using an approximation of a risk-free rate. Using such an approach, unfunded liabilities would shoot up to $2.4 billion.

 

Liability Using 4.38%    

Funding Gap

 Pct. Funded using 4.38%

Reported Pct. Funded

Increase in the Funding Gap

Alabama
$66,291,508
$35,528,410
46%
74%
$24,656,954
Alaska
$25,066,105
$15,690,604
37%
61%
$9,718,337
Arizona
$71,006,697
$36,797,126
48%
78%
$26,928,303
Arkansas
$36,126,595
$18,529,442
49%
78%
$13,427,689
California
$766,355,983
$370,454,396
52%
81%
$275,766,865
Colorado
$86,834,365
$49,235,377
43%
69%
$32,297,816
Connecticut
$69,254,835
$43,801,935
37%
62%
$27,943,435
Delaware
$12,125,045
$4,939,395
59%
94%
$4,509,879
Florida
$219,329,665
$100,289,834
54%
84%
$77,844,385
Georgia
$120,505,406
$50,949,469
58%
87%
$40,606,996
Hawaii
$26,349,814
$14,968,853
43%
69%
$9,800,745
Idaho
$18,691,467
$9,760,567
48%
74%
$6,633,967
Illinois
$211,806,716
$147,810,297
30%
51%
$85,371,206
Indiana
$54,928,551
$30,367,420
45%
67%
$18,003,706
Iowa
$40,159,147
$18,641,861
54%
81%
$13,556,631
Kansas
$33,656,745
$20,195,524
40%
64%
$12,518,539
Kentucky
$54,319,698
$33,551,915
38%
58%
$18,632,961
Louisiana
$64,456,005
$40,649,357
37%
60%
$24,798,081
Maine
$22,338,299
$11,871,399
47%
73%
$7,928,299
Maryland
$82,230,712
$47,810,197
42%
65%
$29,176,147
Massachusetts
$99,921,716
$58,551,265
41%
68%
$38,781,381
Michigan
$116,063,296
$58,553,796
50%
79%
$43,151,396
Minnesota
$101,984,977
$55,105,410
46%
77%
$41,149,626
Mississippi
$49,974,710
$28,880,242
42%
67%
$18,587,963
Missouri
$89,035,239
$45,144,646
49%
79%
$33,720,243
Montana
$16,171,741
$8,539,761
47%
74%
$5,900,714
Nebraska
$14,972,182
$6,711,785
55%
88%
$5,544,812
Nevada
$52,779,571
$28,763,678
46%
72%
$19,631,224
New Hampshire
$14,295,139
$9,307,219
35%
58%
$5,765,146
New Jersey
$220,496,336
$131,376,805
40%
66%
$85,568,111
New Mexico
$46,179,829
$24,092,858
48%
76%
$17,176,467
New York
$233,631,704
$84,770,704
64%
101%
$86,898,704
North Carolina
$112,869,858
$38,422,746
66%
97%
$35,893,316
North Dakota
$7,120,501
$3,478,401
51%
81%
$2,644,701
Ohio
$272,579,670
$159,522,721
41%
66%
$101,385,299
Oklahoma
$54,183,775
$34,201,412
37%
57%
$19,368,531
Oregon
$90,455,162
$41,725,962
54%
86%
$33,644,562
Pennsylvania
$177,242,638
$87,256,038
51%
81%
$65,924,938
Rhode Island
$18,795,158
$12,043,074
36%
59%
$7,294,732
South Carolina
$66,954,107
$38,082,537
43%
69%
$24,903,406
South Dakota
$11,620,818
$4,746,471
59%
92%
$4,125,923
Tennessee
$53,087,897
$21,448,243
60%
90%
$17,889,156
Texas
$247,876,059
$116,892,797
53%
84%
$92,196,855
Utah
$37,668,453
$16,850,023
55%
86%
$13,369,270
Vermont
$6,542,935
$3,619,811
45%
73%
$2,529,980
Virginia
$104,271,677
$49,148,677
53%
80%
$35,136,677
Washington
$91,931,057
$34,768,957
62%
99%
$34,176,357
West Virginia
$21,517,082
$13,540,052
37%
56%
$7,250,663
Wisconsin
$123,292,055
$44,380,755
64%
100%
$44,187,455
Wyoming
$11,785,022
$5,213,862
56%
89%
$4,383,408
Source: Pew Center on the States, 2011

Estimating State Pension Funding: Comparisons

Even small changes to the assumed investment rates of return can dramatically affect states' pension bills. Compare your state's funding level using current assumptions with those using discount rates of 8 percent, 5.22 percent and 4.38 percent.

 

Reported Pct. Funded

 Pct. Funded using 8%

 Pct. Funded using 5.22%

 Pct. Funded using 4.38%

Alabama

74%
74%
53%
46%
Alaska
61%
60%
42%
37%
Arizona
78%
77%
55%
48%
Arkansas
78%
78%
55%
49%
California
81%
82%
59%
52%
Colorado
69%
69%
49%
43%
Connecticut
62%
59%
42%
37%
Delaware
94%
94%
67%
59%
Florida
84%
86%
61%
54%
Georgia
87%
92%
65%
58%
Hawaii
69%
69%
49%
43%
Idaho
74%
76%
54%
48%
Illinois
51%
48%
34%
30%
Indiana
67%
71%
51%
45%
Iowa
81%
85%
61%
54%
Kansas
64%
64%
45%
40%
Kentucky
58%
61%
43%
38%
Louisiana
60%
59%
42%
37%
Maine
73%
75%
53%
47%
Maryland
65%
67%
47%
42%
Massachusetts
68%
66%
47%
41%
Michigan
79%
79%
56%
50%
Minnesota
77%
73%
52%
46%
Mississippi
67%
67%
48%
42%
Missouri
79%
78%
56%
49%
Montana
74%
75%
53%
47%
Nebraska
88%
88%
62%
55%
Nevada
72%
72%
52%
46%
New Hampshire
58%
56%
40%
35%
New Jersey
66%
64%
46%
40%
New Mexico
76%
76%
54%
48%
New York
101%
101%
72%
64%
North Carolina
97%
105%
75%
66%
North Dakota
81%
81%
58%
51%
Ohio
66%
66%
47%
41%
Oklahoma
57%
59%
42%
37%
Oregon
86%
86%
61%
54%
Pennsylvania
81%
81%
58%
51%
Rhode Island
59%
57%
41%
36%
South Carolina
69%
69%
49%
43%
South Dakota
92%
94%
67%
59%
Tennessee
90%
95%
68%
60%
Texas
84%
84%
60%
53%
Utah
86%
88%
63%
55%
Vermont
73%
71%
51%
45%
Virginia
80%
84%
60%
53%
Washington
99%
99%
70%
62%
West Virginia
56%
59%
42%
37%
Wisconsin
100%
102%
72%
64%
Wyoming
89%
89%
63%
56%
Source: Pew Center on the States, 2011

Methodology

States use various investment rate of return assumptions, the most common of which is 8 percent, to discount the value of their future liabilities. In other words, they calculate the amount that, were investments to generate 8 percent returns each year, would be equal to the eventual cost when the bill comes due. Some states use different rates for each of the different plans they participate in. For retiree health care, states use a lower discount rate, as they typically do not have substantial assets generating returns to pay for those benefits.

Pew re-estimated pension liabilities by assuming they will come due in even increments over the next 50 years. Based on that assumption, Pew calculated an undiscounted liability and applied the new discount rate to that stream of payments. Because most states do not use an assumed rate of return to estimate their retiree health care liabilities, we did not do the same for those obligations.

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Ken Willis

Officer, Communications

202-540-6933

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