2020 Updates to Pew’s Fiscal Sustainability Matrix
Evaluation tool allows for comparative analysis of state pension policies using new data
Following a decade of increasing pension contributions that had a stabilizing effect on state pension plans, windfall investment returns in 2021 were estimated to have reduced state pension debt by more than half a trillion dollars to less than $800 billion—the largest progress in closing the funding gap this century.
But the turmoil in investment markets in fiscal year 2022 has erased most of those investment gains while highlighting the risks that uncertainty and volatility pose to pension plan balance sheets and state budgets. And despite more than a decade of reforms, not all state pension funds are approaching long-term fiscal sustainability, which is defined as government revenues matching expenditures without a corresponding increase in public debt.
To help policymakers navigate the uncertainty inherent in pension management, The Pew Charitable Trusts has updated with 2020 data 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 state plan assessments:
- Historical actuarial metrics highlight the impact of past policies on a plan’s current financial position. These metrics are the foundation of any fiscal assessment; however, they provide little information with which to assess future investment or contribution risks.
- Current plan financial metrics provide information to assess whether a plan is following funding policies that target debt reduction, or if it is at risk of fiscal distress. Based on historical cash flows and funding patterns, these metrics aid in assessing future risks of plan underfunding or insolvency.
- State budgetary risk metrics are designed to aid policymakers as they plan for uncertainty or volatile costs in the future. Because state and local budgets often bear much or all of the risks taken on by public pension plans, these metrics are essential for long-term planning and can prompt reforms where needed.
A comparative analysis of states’ public pension fiscal health using the matrix for 2020—the most recent year for which comprehensive 50-state data is available—shows that:
- Steady progress 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 the majority of plans can take to improve fiscal health and lower costs over time.
- Monitoring cash flows can provide an early warning of potential fiscal distress and has proved useful in prompting needed reforms in the most poorly funded states.
- Policies to measure and manage risk have helped many of the best funded states to keep costs stable. These policies include regular use of stress testing, conservative contribution and investment strategies, and variable benefit provisions that share risk among taxpayers, employees, and retirees.
- Establishing reasonable assumed rates of return that reflect the current market outlook is essential for all plans, regardless of their financial position. Lowering a plan’s assumed rates of investment return can help reduce the risk of the plan missing targets and incurring unexpected costs during market downturns.
Fiscal Sustainability Matrix: 2020
| Actuarial metrics | Plan financial metrics | Budget risk indicators | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| State | Funded ratio, 2020 | Change in funded ratio, 2008-20 | Employer cost/ payroll, 2020 | Operating cash flow ratio, 2020 | Change in OCF | Operating cash flow ratio, 2014 | Net amorti-zation, 2020 | Historic contribution volatility | Assumed rate of return | Normal cost sensitivity |
| Wisconsin | 105% | 6% | 7% | -3.4% | -0.5% | -2.9% | Positive | 2.7% | 7.00% | Low |
| South Dakota | 100% | 3% | 6% | -2.9% | -0.3% | -2.6% | Positive | 0.7% | 6.50% | Low |
| Tennessee | 98% | 3% | 11% | -2.9% | -0.8% | -2.2% | Positive | 1.9% | 7.25% | Low |
| Utah | 97% | 10% | 23% | -1.7% | -0.5% | -1.2% | Positive | 8.8% | 6.95% | Low |
| Washington | 95% | -5% | 7% | -0.5% | 1.5% | -2.0% | Positive | 5.2% | 7.40% | Mid |
| Nebraska | 92% | 0% | 11% | -1.7% | -0.7% | -1.0% | Positive | 2.4% | 7.50% | Mid |
| Idaho | 89% | -4% | 12% | -1.8% | 0.0% | -1.8% | Positive | 1.3% | 7.05% | Mid |
| North Carolina | 87% | -13% | 12% | -2.4% | 0.6% | -3.0% | Positive | 8.4% | 6.50% | High |
| New York | 86% | -21% | 15% | -3.8% | -1.4% | -2.4% | Positive | 12.6% | 6.83% | High |
| Delaware | 85% | -13% | 14% | -3.3% | -0.4% | -2.9% | Positive | 6.7% | 7.00% | High |
| Iowa | 83% | -6% | 10% | -2.9% | 0.0% | -2.9% | Positive | 3.5% | 7.00% | Mid |
| Maine | 82% | 3% | 18% | -2.7% | 0.2% | -2.9% | Positive | 5.1% | 6.75% | Mid |
| Ohio | 82% | 4% | 14% | -4.5% | 0.4% | -4.9% | Positive | 4.1% | 7.32% | High |
| Minnesota | 81% | -1% | 9% | -3.7% | 0.4% | -4.1% | Stable | 2.4% | 7.49% | High |
| West Virginia | 81% | 17% | 21% | -3.6% | -1.8% | -1.8% | Positive | 6.8% | 7.50% | High |
| Wyoming | 79% | -1% | 10% | -3.7% | -1.2% | -2.5% | Negative | 4.1% | 7.00% | High |
| Georgia | 77% | -14% | 22% | -2.8% | 1.1% | -3.9% | Positive | 12.4% | 7.24% | Mid |
| Nevada | 77% | 1% | 15% | -1.6% | -0.6% | -1.0% | Stable | 12.0% | 7.50% | Mid |
| Oregon | 76% | -4% | 20% | -4.0% | 1.0% | -5.0% | Stable | 14.5% | 7.20% | Mid |
| Arkansas | 75% | -12% | 15% | -3.6% | -0.8% | -2.8% | Stable | 1.3% | 7.40% | High |
| Missouri | 75% | -8% | 16% | -3.4% | -0.5% | -2.9% | Positive | 4.1% | 7.35% | High |
| Florida | 74% | -27% | 5% | -4.4% | 0.0% | -4.4% | Negative | 3.2% | 6.72% | Mid |
| Oklahoma | 74% | 13% | 19% | -2.3% | -0.4% | -1.8% | Positive | 3.4% | 6.97% | Mid |
| Virginia | 74% | -9% | 13% | -2.4% | -0.2% | -2.3% | Stable | 9.7% | 6.75% | Mid |
| California | 72% | -15% | 33% | -0.2% | 2.5% | -2.7% | Positive | 23.2% | 7.10% | High |
| Maryland | 70% | -8% | 17% | -2.3% | -0.5% | -1.8% | Positive | 7.9% | 7.40% | Mid |
| Colorado | 69% | 0% | 19% | -4.2% | 0.3% | -4.5% | Negative | 9.4% | 7.25% | Mid |
| Indiana | 69% | -3% | 19% | -1.7% | -1.9% | 0.3% | Positive | 7.8% | 6.75% | Mid |
| Texas | 68% | -23% | 8% | -2.7% | 0.9% | -3.6% | Negative | 2.4% | 7.19% | High |
| Alabama | 67% | -10% | 15% | -3.1% | 0.9% | -4.1% | Positive | 5.3% | 7.70% | High |
| Montana | 67% | -16% | 15% | -3.2% | -1.5% | -1.7% | Positive | 6.5% | 7.60% | Mid |
| Alaska | 66% | -10% | 44% | -4.5% | -1.8% | -2.7% | Positive | 31.4% | 7.38% | Low |
| Kansas | 66% | 7% | 14% | -2.0% | 0.8% | -2.8% | Positive | 9.5% | 7.75% | Mid |
| Louisiana | 63% | -6% | 34% | -3.1% | 0.2% | -3.3% | Positive | 16.1% | 7.45% | High |
| Arizona | 62% | -18% | 19% | -1.8% | 0.8% | -2.6% | Positive | 10.3% | 7.44% | Mid |
| Michigan | 60% | -23% | 28% | -4.5% | 1.3% | -5.8% | Positive | 20.9% | 7.06% | Low |
| Mississippi | 59% | -14% | 19% | -4.4% | -1.1% | -3.3% | Negative | 7.3% | 7.75% | High |
| New Hampshire | 59% | -16% | 16% | -1.9% | -0.3% | -1.6% | Positive | 7.5% | 6.75% | High |
| Pennsylvania | 58% | -28% | 38% | -1.3% | 4.7% | -6.0% | Positive | 34.3% | 7.17% | Low |
| Vermont | 58% | -29% | 15% | -1.6% | -0.2% | -1.4% | Positive | 10.1% | 7.00% | High |
| Massachusetts | 56% | -7% | 22% | -2.3% | 1.0% | -3.3% | Negative | 12.9% | 7.25% | High |
| North Dakota | 55% | -32% | 10% | -1.7% | -0.8% | -0.9% | Negative | 5.1% | 7.08% | High |
| Rhode Island | 54% | -7% | 25% | -4.2% | 2.3% | -6.5% | Positive | 6.7% | 7.00% | Low |
| Hawaii | 53% | -16% | 31% | -1.2% | 1.0% | -2.2% | Negative | 17.9% | 7.00% | High |
| South Carolina | 52% | -18% | 19% | -1.6% | 2.3% | -3.9% | Positive | 8.8% | 7.25% | High |
| New Mexico | 50% | -33% | 16% | -3.6% | -0.6% | -3.0% | Negative | 4.4% | 7.10% | Mid |
| Kentucky | 45% | -19% | 42% | -3.1% | 3.9% | -7.0% | Positive | 33.4% | 6.74% | Low |
| Connecticut | 43% | -19% | 35% | -3.0% | -0.2% | -2.7% | Negative | 17.8% | 6.90% | Mid |
| New Jersey | 38% | -34% | 22% | -4.4% | 2.4% | -6.9% | Negative | 16.8% | 7.30% | High |
| Illinois | 37% | -17% | 49% | -2.2% | -0.6% | -1.5% | Negative | 39.0% | 6.89% | High |
Notes: Pew's measure of contribution adequacy 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. Historic contribution volatility measures the gap between the highest and lowest employer contribution rates over the period from 2008 through 2020. Higher values indicate 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: Comprehensive annual financial reports, actuarial reports and valuations, or other public documents, or as provided by plan officials
David Draine is a senior officer, Emma Wei is an associate manager, and Keith Sliwa is a principal associate with The Pew Charitable Trusts’ public sector retirement systems project.
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