Fitch: States’ net pension liabilities rise in FY 2016; Illinois tops list

Illinois has the highest pension burden among all 50 states, said Fitch Ratings' 2017 state pension report released Tuesday. ​

According to the report, Illinois' unfunded pension liabilities amounted to 22.8% of residents' personal income at the end of fiscal year 2016, compared to a median 3.1% for all states and 1% for Florida, the least burdened state.

The median 3.1% for all states is higher than the approximately 2.9% reported in fiscal year 2015, which Fitch attributed in the report to weak asset performance, reduced discount rates, inadequate employer pension contributions, and "ongoing unfavorable demographic and actuarial trends."

Douglas Offerman, senior director at Fitch Ratings, noted that a number of states with the highest pension burdens — Illinois, Kentucky, New Jersey and Massachusetts — help cover the cost of local teachers' pensions. Teachers make up one of the largest populations of public-sectors workers, Mr. Offerman said.

Under Fitch's calculations, Illinois' net pension liabilities totaled $151.5 billion at the end of fiscal year 2016; New Jersey, $91.8 billion; Massachusetts, $48.9 billion; and Kentucky, $32.8 billion. For this year's report, Fitch used a 6% discount rate to calculate net pension liabilities, down from 7% last year.

Forty-six states saw unfunded pension liabilities increase in 2016.

Fitch's report also looked at the total long-term liabilities for states, which combines states' net pension liabilities and net tax-supported debt.

It found that the ratio of median long-term liabilities for states relative to residents' total personal income rose to 6% in fiscal year 2016, up from 5.6% in 2015, driven entirely by rising pension obligations. Unlike pension obligations, "the level of bonded debt issued by states has barely changed over the last year, with net tax-supported debt measuring 2.3% of personal income" in both fiscal years 2016 and 2015, compared to a median 3.1% for pensions in fiscal year 2016 and 2.9% in fiscal year 2015, the report said.

The majority of states use June 30 fiscal year-end dates for pension reporting.