The Trillion Dollar Gap

Underfunded State Retirement Systems and the Road to Reform

quick summary

Please see our updated Widening Gap report for the latest numbers on state retiree benefits.

This 2010 report on funding state employee retirement benefits examined the roots of states' significant shortfall and how the economic crisis spurred states into action.

$1 trillion. That's the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees' retirement benefits and the $3.35 trillion price tag of those promises.

Why does it matter? Because every dollar spent to reduce the unfunded retirement liability cannot be used for education, public safety and other needs. Ultimately, taxpayers could face higher taxes or cuts in essential public services.

The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform shows why states must take strong action now—or taxpayers will suffer later. 

To a significant degree, the $1 trillion reflects states' own policy choices and lack of discipline:

  • failing to make annual payments for pension systems at the levels recommended by their own actuaries;
  • expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and
  • providing retiree health care without adequately funding it.

Key Findings 

Retirement benefits provide a reliable source of post-employment income for government workers, and they help public employers retain qualified personnel. For states that have not been disciplined about fulfilling their obligations, the financial pressure builds each year.

  • In 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four—Florida, New York, Washington and Wisconsin—could make that claim.
  • In eight states—Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia—more than one-third of the total pension liability was unfunded. Two states—Illinois and Kansas—had less than 60 percent of the necessary assets on hand.
  • Nine states were deemed solid performers, having enough assets to cover at least 7.1 percent—the 50-state average—of their non-pension liabilities. Only two states—Alaska and Arizona—had 50 percent or more of the assets needed.
  • Forty states were classified as needing improvement, having set aside less than 7.1 percent of the funds required. Twenty of these have no assets on hand to cover their obligations.


Pew's analysis for The Trillion Dollar Gap is based on data from states' own Comprehensive Annual Financial Reports, pension plan system annual reports and actuarial valuations. Pew researchers analyzed the funding performance of 231 state-administered pension plans and 159 state-administered retiree health care and other non-pension benefit plans, which include some localities' and teacher plans.  

Media Contact

Catherine An

Officer, Communications