Pew Center: State pension funding gap widens

Continued investment losses and not enough money set aside have created a record $757 billion gap between states' pension assets and obligations, according to a report released Monday by the Pew Center on the States.

The new report is an update of a 2009 report, “The Widening Gap.” The update looked at fiscal year 2010 data, the latest budget year available from all 50 states. While the latest report shows the aggregate funding ratio has dropped to 75% from 78%, it also found that states have enacted an “unprecedented” number of pension reforms that, coupled with investment gains, “may improve the funding situation they face going forward,” the report noted.

Pew senior researcher David Draine noted during a media web briefing that the 233 public pension plans studied “have plenty of money to cover their benefits for the next five to 10 years or longer.” The report identified 11 states as “solid performers” with 90% funding in fiscal 2010. Two states — Texas and Wyoming — joined the list this year.

Utah and Idaho slipped from that category to “needs improvement,” joining Iowa, Minnesota, Oregon, Vermont and Washington in the group that's funded between 80% and 89%. Another 32 states in the “serious concerns” group were less than 80% funded in fiscal 2010.

Pew researchers anticipate further reforms, including reduced benefits, higher employee contributions and lower assumed rates of return on investments. “It's going to be difficult for states to invest their way out,” of their funding shortfalls, Mr. Draine said in an interview.

“While investment returns are a very key piece, it's equally important that states continue to pay their bill every year,” said Kil Huh, Pew Center on the States research director, during the briefing.

Keith Brainard, research director for the National Association of State Retirement Administrators, said in an interview that most state plans “recognize the need to make changes, and in the aggregate, most of them have time to make needed changes. The plans are regularly monitoring their condition.”

See the full report