States Scaling Back Public Pension Plans to Close Funding Gap

Publication: The Washington Post

Author: Laura Cohn

05/16/2010 - If you thought earning a fat pension in a public-sector job was a sure thing, think again. According to an analysis by the Pew Center on the States, state and local pension plans are operating under a deficit of at least $1 trillion. A separate report on 125 state plans by Wilshire Consulting found that the ratio of assets to liabilities -- the funding ratio -- of state pension systems slipped to 65 percent in 2009 from 85 percent in 2008.

How did this happen? Simply put, the states didn't make big enough payments to their pension plans, they failed to squirrel away enough money to pay retiree health benefits and, perhaps most egregious, they increased their benefits without figuring out how to pay for them. Pew's $1 trillion figure -- tallied through the end of the 2008 fiscal year -- is conservative given that it doesn't capture the stock-market losses incurred in the second half of that year.


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