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Pension Funds

Unfunded pension liabilities factor into some states’ poor grades on legacy costs — report

Nine states in the U.S. have received the lowest possible grades on legacy costs in a new report on budget practices and transparency from the Volcker Alliance released Thursday.

The report, "Truth and Integrity in State Budgeting," gave a D-minus to Hawaii, Illinois, Kansas, Massachusetts, New Jersey, Pennsylvania, Texas, Virginia and Wyoming, based on five categories, one of which, legacy costs, takes pension underfunding into account and which the report states is "the one most threatening to budgetary stability." The legacy costs category also includes other post-employment benefits.

The other four categories are budget forecasting, budget maneuvers, reserve funds and transparency.

For those states that received an overall D-minus in the report, six states' unfunded pension liabilities were a large contributor to their poor grades, the report said, which measured the states' funding ratios for fiscal year 2015. New Jersey's funding ratio ranked at the bottom at 38%, followed by Illinois at 40%, Pennsylvania at 56%, Hawaii and Massachusetts at 62% each, and Kansas at 65%. Those states whose funding ratios did rank above the average 72% were Wyoming at 73%, Virginia at 75% and Texas at 76%.

Eight states received A grades for their legacy costs: South Dakota, which had a pension funding ratio of 104%; Wisconsin, 98%; Idaho and Oregon, 92% each; Nebraska, 91%; Utah, 86%; Iowa, 85%; and Oklahoma, 79%.

The report is available on the Volcker Alliance's website.