Pension Funding Gap and the States

This month, the Pew Center for the States released a report, The Trillion Dollar Gap, describing the reality that state pension, health care and other retirement plans pose promises of $3.35 trillion but states only have $2.35 trillion to pay for the benefits. As described by the authors of the report:

"To a significant degree, the $1 trillion gap 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."

The report notes that while California's plans are over 80% funded, there are still fiscal issues. "California has failed to consistently pay the actuarially required contribution, spurring a funding decline from a $9 billion pension surplus in 2000 to a $53 billion unfunded liability in 2007, based on the most recently available data."

This all unfortunate news (although states certainly should have been aware of funding issues without release of the report) means that states have no only current budget issues, but ones that will continue to make it difficult to balance state budget in the future.

While tax reforms are needed in many states, particularly California, the Pew report is a reminder that a variety of spending issues also need attention. The pension one is a big one.