WASHINGTON—State-run retirement systems faced a $968 billion shortfall in 2013 between pension benefits promised to government workers and the funding needed to meet those obligations, a $54 billion increase from the previous year, according to a brief released today by The Pew Charitable Trusts.
The brief, “The State Pensions Funding Gap: Challenges Persist,” examines data from 238 public sector retirement plans across the 50 states for 2013, the most recent year for which complete data were available. Pew, for the first time, is also making its public pension data available.
Pew also found that preliminary data from 2014 point to some improvement, with a reduction in unfunded liabilities for the majority of states, due in part to new accounting standards requiring investment losses or gains to be disclosed in the year they occur rather than over time. Yet the study found that state pension debt projected for all states in 2014 remains over $900 billion, a level higher—as a percentage of U.S. gross domestic product—than at any time before the Great Recession.
“The good news from the 2014 data is an expected reduction in states’ unfunded pension liabilities and strong investment returns,” said Greg Mennis, director of Pew’s public sector retirement systems project. “But there’s still a high level of debt, and policymakers cannot count on uncertain returns to close the gap.”
Pew’s brief notes that the Governmental Accounting Standards Board established new accounting and disclosure rules, effective June 15, 2014, designed to provide more standardized information on the health of pension funds. These new data will allow for the development of more accurate metrics to determine whether annual pension payments are sufficient to reduce unfunded liabilities. Among the metrics is net amortization, which measures whether funding policies in force in state and local governments are sufficient to reduce pension debt in the near term.
The Pew Charitable Trusts has been reporting on state and local pension data since 2007. Data used for this report come from the Comprehensive Annual Financial Reports produced by each state and pension plan, actuarial reports and valuations, and other state documents that disclose financial details about public employment retirement systems for 2013. Pew also obtained 2014 data for over 90 of the 100 largest state plans for its preliminary analysis. Most states have multiple retirement systems that cover distinct groups of workers, such as public safety, teachers, or other state workers. Additionally, this analysis does not include figures for retiree health benefits known as Other Post-Employment Benefits, or OPEB.