States have a $1.4 trillion pension problem

In most states, public pension funds don't have enough money to pay for benefits they've promised to government worke...

Posted: Apr 12, 2018 8:05 PM
Updated: Apr 12, 2018 8:05 PM

In most states, public pension funds don't have enough money to pay for benefits they've promised to government workers.

The problem is getting worse. Overall, the shortfall across states grew by $295 billion between 2015 and 2016, according to a new report from The Pew Charitable Trusts.

All together, state pension plans had just $2.6 trillion to cover a cumulative liability of $4 trillion.

"Many state retirement systems are on an unsustainable course," the report said.

Colorado, Connecticut, Illinois, Kentucky, and New Jersey have less than half of the assets needed to pay promised benefits and another 17 states have less than two-thirds.

One driver of the growing shortfall was the low investment return in 2016. The median return was 1%, while states had projected a 7.5% return.

But the gap can't be blamed on the stock market entirely. Many states simply don't contribute enough money. Twenty-three states still would have fallen short of what they needed even if their investment assumptions had been correct in 2016, according to the report.

Related: States are changing teacher pensions

There's no one-size-fits all approach to fix the pension problem. States with well-funded plans vary in the benefits they offer, investment choices, and assumptions they use to determine how much they need to contribute.

Lawmakers in some states have changed the pension benefits they promise to future workers as a way to stem the growing liability. Despite teacher protests, Kentucky Governor Matt Bevin signed controversial legislation this week that changes pension benefits.

Related: 3 things teachers should know about retirement planning

States with the worst pension fund shortfalls

1. Kentucky and New Jersey: 31% funded

2. Illinois: 36% funded

3. Connecticut: 41% funded

4. Colorado: 46% funded

5. Hawaii: 51% funded

States with the best funded pension plans

1. Wisconsin: 99% funded

2. South Dakota: 97% funded

3. Tennessee: 94% funded

4. New York: 91% funded

5. Nebraska: 89% funded

Article Comments

Mason City
Clear
37° wxIcon
Hi: 45° Lo: 32°
Feels Like: 27°
Albert Lea
Clear
36° wxIcon
Hi: 42° Lo: 33°
Feels Like: 29°
Austin
Clear
37° wxIcon
Hi: 45° Lo: 34°
Feels Like: 31°
Charles City
Overcast
34° wxIcon
Hi: 43° Lo: 31°
Feels Like: 26°
Rochester
Clear
34° wxIcon
Hi: 40° Lo: 31°
Feels Like: 24°
Slick roads possible Sunday morning
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Blooming Prairie football advances to Prep Bowl Final with dominant win

Image

Bringing the Floyd in Floyd of Rosedale

Image

RCTC's championship hopes end in national semifinal

Image

Lourdes' Alyssa Ustby signs letter of intent to UNC

Image

A special hunt

Image

Bellringing starts in Mason City

Image

Mourning another school shooting

Image

Dreams do come true

Image

West Hancock advances, St. Ansgar falls in state semifinals

Image

New Live Eye in Austin

Community Events