States Shored Up Pension Plans in 2021, but More Is Needed

Updates to Pew’s fiscal sustainability matrix, a tool for comparative analysis

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States Shored Up Pension Plans in 2021, but More Is Needed
The Pew Charitable Trusts

Editor's Note: This article was updated Nov. 22, 2023, to correct data errors in the table.

Over the past decade, policy reforms and increased financial contributions have dramatically improved the cash flow situation of some of the nation’s most troubled state pension plans. Thanks to these changes, no state was at risk of pension insolvency as of fiscal year 2021. Yet for some states, these improvements won’t be enough to provide their pension systems—and the public employees and retirees who rely on them—with long-term stability.

In 2021, once-in-a-generation investment returns raised state pension funding to levels not seen in more than a decade, but recent investment shortfalls and economic uncertainty have erased most of those gains. Whereas successful states—those with long track records of stable costs and full funding of their pension obligations—have policies in place to weather financial market volatility, states that still face significant underfunding or uncertain costs have more work to do to deliver true sustainability for their pension systems.

Further, policymakers have an array of proven practices at their disposal to achieve this goal. Successful states have shown how employing fiscal discipline, benefit designs that balance retirement security and predictable contributions, and risk management tools can ensure that retirement plans are well-funded and have stable costs. The gains from more than a decade of reforms have given other states a roadmap to duplicate this performance going forward. But conversely, if in the future states face declining funding levels relative to promised benefits or rapidly rising costs, those problems also will be the result of policy choices—and not merely bad luck.

To help policymakers navigate the inherent uncertainty of pension management and assess the resiliency of their plans, The Pew Charitable Trusts created a 50-state matrix of fiscal sustainability metrics, which has now been updated with 2021 data—the most recent year for which comprehensive 50-state data is available. Pew then used the updated matrix to conduct a comparative analysis of states’ public pension fiscal health and found that:

  • Steadily paying down unfunded liabilities—the portion of pension obligations that exceeds the value of a fund’s assets—remains the single most important action that underfunded plans can take to improve their fiscal health and lower costs over time.
  • Monitoring cash flows can provide an early warning of potential fiscal distress, and improvements in this measure show how reforms in Kentucky, New Jersey, Pennsylvania, and other states have reduced the risk of insolvency.
  • Policies to measure and manage risk—including regular use of stress testing, conservative contribution and investment strategies, and variable benefit provisions that share risk among taxpayers, employees, and retirees—have helped many of the most successful states keep costs stable.
  • Establishing reasonable assumed rates of return that reflect the current market outlook is essential for all plans, regardless of their financial position, and can help reduce the risk of missing return targets and incurring unexpected costs during market downturns.

Fiscal sustainability matrix 2021

This tool presents critical information in a single table to highlight the practices of successful states and facilitate comparative analyses, using three sets of metrics:

  • Historical actuarial metrics are the foundation of any fiscal assessment and show how past policies contributed to plans’ current financial position, but they provide little information with which to assess future investment or contribution risks.
  • Current financial metrics, based on historical cash flows and funding patterns, provide information necessary to assess whether a plan is adhering to funding policies that target debt reduction or is at risk of fiscal distress, such as underfunding or insolvency.
  • Budgetary risk metrics provide essential information that policymakers need when planning for uncertainty or volatile costs, and, because state and local budgets often bear much or all of the risks taken on by public pension plans, can prompt needed reforms to ensure that pension costs do not crowd out other important public investments.

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Matrix Assesses State Pension Plans' Long-Term Fiscal Health

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The Pew Charitable Trusts has developed a 50-state matrix of fiscal sustainability metrics to highlight the practices of successful state pension systems and to help state policymakers assess the resiliency of their plans. This tool presents critical data in a single table to facilitate comparative analyses and assessments.

Actuarial metrics Plan financial metrics Budget risk indicators
State Funded ratio, 2021 Change in funded ratio, 2008-2021 Employer cost/ payroll Operating cash flow ratio, 2021 Change in OCF Operating cash flow ratio, 2014 Net amortization, 2021 Historical contribution volatility Assumed rate of return Normal cost sensitivity
Washington 119% 18% 7% -0.6% 1.4% -2.0% Positive 5.2% 7.3% High
Tennessee 114% 19% 10% -3.1% -0.9% -2.2% Positive 1.9% 7.2% Low
Nebraska 111% 19% 11% -1.9% -0.9% -1.0% Positive 2.4% 7.5% Mid
Delaware 108% 10% 14% -3.3% -0.3% -2.9% Positive 6.7% 7.0% High
South Dakota 106% 8% 6% -3.2% -0.6% -2.6% Positive 0.7% 6.5% Low
Wisconsin 106% 6% 7% -3.3% -0.4% -2.9% Positive 2.7% 7.0% Low
Utah 105% 19% 23% -1.6% -0.4% -1.2% Positive 8.8% 7.0% Low
Idaho 102% 8% 12% -2.1% -0.3% -1.8% Positive 1.3% 7.0% Mid
Iowa 101% 12% 10% -3.1% -0.2% -2.9% Stable 3.5% 7.0% Mid
New York 99% -8% 16% -4.4% -2.0% -2.4% Negative 12.6% 6.8% Mid
West Virginia 98% 34% 19% -4.0% -2.2% -1.8% Positive 6.8% 7.5% High
North Carolina 95% -4% 14% -2.1% 0.8% -3.0% Positive 10.0% 7.0% Mid
Maine 93% 13% 18% -2.7% 0.2% -2.9% Positive 5.2% 6.8% Mid
Georgia 92% 0% 21% -3.2% 0.7% -3.9% Positive 12.4% 7.2% Mid
Oklahoma 92% 31% 18% -3.5% -1.7% -1.8% Positive 3.4% 7.0% Mid
Arkansas 91% 3% 16% -3.8% -1.0% -2.8% Negative 1.6% 7.4% High
Florida 91% -10% 6% -4.5% -0.1% -4.4% Negative 3.3% 5.8% High
Minnesota 90% 8% 9% -3.7% 0.4% -4.1% Stable 2.6% 7.5% High
Ohio 90% 13% 14% -4.4% 0.5% -4.9% Positive 4.1% 7.4% High
Missouri 88% 5% 16% -3.5% -0.6% -2.9% Stable 4.4% 7.2% High
Oregon 88% 7% 18% -4.4% 0.6% -5.0% Negative 14.5% 7.2% Mid
Virginia 88% 5% 15% -2.5% -0.2% -2.3% Stable 9.7% 6.8% Mid
Nevada 87% 10% 15% -1.9% -0.9% -1.0% Negative 12.0% 7.5% Mid
Texas 86% -5% 9% -2.8% 0.8% -3.6% Negative 2.9% 5.7% Mid
California 85% -2% 27% -1.6% 1.1% -2.7% Negative 23.2% 7.0% High
Wyoming 85% 6% 10% -3.7% -1.2% -2.5% Negative 4.1% 6.4% High
Alaska 81% 5% 53% -4.4% -1.7% -2.7% Positive 38.7% 7.4% Low
Maryland 81% 2% 18% -2.4% -0.6% -1.8% Stable 7.9% 7.3% Mid
Indiana 80% 8% 24% 0.3% 0.1% 0.3% Positive 11.5% 6.8% Mid
Louisiana 80% 10% 34% -3.4% -0.1% -3.3% Positive 16.1% 7.5% High
Montana 79% -4% 14% -3.6% -1.8% -1.7% Negative 6.5% 7.2% High
Colorado 78% 8% 21% -3.2% 1.3% -4.5% Positive 10.2% 7.3% Mid
North Dakota 78% -9% 10% -1.9% -1.0% -0.9% Negative 5.1% 5.5% Mid
Kansas 76% 18% 13% -2.7% 0.1% -2.8% Positive 20.9% 7.5% Low
Alabama 75% -2% 12% -4.2% -0.1% -4.1% Negative 5.3% 7.7% High
Arizona 74% -6% 31% 4.9% 7.5% -2.6% Positive 22.1% 7.4% Mid
New Mexico 74% -9% 15% -4.2% -1.2% -3.0% Negative 4.4% 4.8% Mid
Michigan 73% -10% 30% -4.2% 1.5% -5.8% Positive 20.9% 6.8% Low
New Hampshire 72% -3% 16% -2.1% -0.5% -1.6% Negative 7.6% 6.8% High
Mississippi 71% -2% 19% -4.8% -1.6% -3.3% Negative 7.4% 7.8% High
Massachusetts 69% 6% 23% -2.1% 1.2% -3.3% Negative 13.3% 7.2% High
Pennsylvania 68% -19% 37% -1.9% 4.1% -6.0% Positive 34.3% 7.2% Low
Vermont 68% -19% 16% -1.7% -0.4% -1.4% Negative 10.1% 7.0% High
Rhode Island 66% 5% 26% -4.1% 2.4% -6.5% Positive 7.5% 7.0% Low
Hawaii 64% -5% 34% -0.6% 1.6% -2.2% Negative 21.0% 7.0% High
South Carolina 62% -8% 18% -1.9% 2.0% -3.9% Negative 8.8% 7.3% High
Connecticut 53% -9% 37% -2.6% 0.1% -2.7% Negative 28.7% 6.9% Mid
Kentucky 52% -11% 45% -2.5% 4.4% -7.0% Positive 34.8% 6.4% Low
New Jersey 50% -23% 26% -3.6% 3.3% -6.9% Negative 20.5% 6.1% High
Illinois 44% -10% 50% -2.1% -0.5% -1.5% Negative 39.0% 6.7% High

Notes: Net amortization is Pew's measure of contribution adequacy. It tests whether employer and employee contributions are sufficient to keep pension debt stable or to make progress in paying down unfunded liabilities through positive amortization. States falling short of that minimum threshold have negative amortization. The operating cash flow ratio is the difference, as a share of plan assets, between benefit payments and other expenses and employer and employee contributions. State pension plans typically have a negative operating cash flow and expect investments to make up the difference. The cash flow ratio serves as a proxy for the investment returns that pension plans need to avoid a decline in assets: A cash flow ratio below -5% is an early warning sign of potential insolvency if investment returns are lower than anticipated. Historical contribution volatility measures the gap between the highest and lowest employer contribution rates over the period from 2008 through 2021. Higher values indicate that employer costs have been less stable over that period. Normal cost sensitivity offers a measure of how uncertain the cost of benefits earned by newly hired workers is expected to be, based on the level of benefit, the assumed rate of return, and the presence or absence of tools to manage and mitigate risk in the plan design. This is a relative measure based on practices across the 50 states.

Sources: Annual comprehensive financial reports, actuarial reports and valuations, or other public documents, or as provided by plan officials

David Draine is a principal officer, Keith Sliwa is a principal associate, and Claire Lee is an associate with The Pew Charitable Trusts’ public sector retirement systems project.

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