The funding shortfall of public-sector retirement systems increased by $54 billion in 2013 to reach $968 billion, said a brief released Tuesday by The Pew Charitable Trusts. The work is based on 2013 data for 238 public-sector retirement systems.
Preliminary 2014 data for 90 of the 100 largest state plans show some improvement, with most states seeing their unfunded liabilities shrink, but the projected overall deficit is still more than $900 billion, Pew researchers said.
That means policymakers cannot count on returns to close the gap, said Greg Mennis, director of Pew's public-sector retirement systems project.
Mr. Mennis said new accounting and disclosure rules from the Governmental Accounting Standards Board that became effective in June 2014 offer more accurate metrics to determine whether annual contributions and funding policies are sufficient to reduce unfunded liabilities. For 15 states that regularly make annually required contributions based on scenarios using current market values, liabilities “are actually declining,” Mr. Mennis said in an interview.
Other states that use longer amortization, or smoothing, periods “have essentially been refinancing their pension mortgage. In some cases, states need to go further and come up with a plan” to reduce their unfunded liabilities, Mr. Mennis said. “Make a plan to pay your debt. The well-funded states consistently do that. The ARC by itself may not be good enough.”
The brief, “The State Pensions Funding Gap: Challenges Persist,” is available on the Pew website.