Colorado and South Carolina have pulled back from making additional payments to their underfunded pension plans, moves that may play out in other states struggling to balance budgets as the coronavirus ravages tax revenue.
Colorado eliminated a $225 million supplemental payment to the $52.1 billion Public Employees' Retirement System, Denver, backing away from a 2018 plan to bolster the pension, which is about 60% funded after suffering from years of inadequate government contributions. South Carolina suspended a statutorily scheduled 1% employer contribution increase to the $28.2 billion South Carolina Retirement System Investment Commission, Columbia, for the fiscal year beginning July 1.
And New Jersey, which has one of the nation's worst-funded pension systems, has deferred a $950 million contribution to the $75 billion New Jersey Pension Fund, Trenton, from Sept. 30 to October, and Gov. Phil Murphy's plan to increase contributions 13% to $4.6 billion is in question.
"There's definitely going to be pressure in some places to not pay annual required contributions because of revenue shortfalls," said Gene Kalwarski, CEO of Cheiron, an actuarial consultant. "States are going to have to make up the shortfall somehow, some way."
States are projected to face budget shortfalls of about $555 billion through 2022, according to the Center on Budget and Policy Priorities, and without more aid from Washington they will have to cut spending or raise taxes. Postponing pension plan payments may ease budget pain in the short-run, but it will defer the costs to later years and allow unfunded liabilities, estimated at as much as $5 trillion by the Federal Reserve, to grow.