A $1 trillion gap. That is what exists between the $3.35 trillion in pension, health care and other retirement benefits states have promised their current and retired workers as of fiscal year 2008 and the $2.35 trillion they have on hand to pay for them, according to a report released Thursday by the Pew Center on the States.
The Washington-based policy research organization paints a steadily deteriorating portrait among many states whose ability to finance public pension and health programs has fallen well behind their promises made to state employees.
In eight states—Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia—more than one-third of the total liability was unfunded. Two states—Kansas and Illinois—had less than 60 percent of the necessary assets on hand to meet long-term pension obligations at the end of 2008.
Pew's figure actually is conservative, for two reasons. It counts total assets in state-run public sector retirement benefit systems as of the end of fiscal year 2008, which for most states ended on June 30, 2008—so the total does not represent the second half of that year, when states' pension fund investments were devastated by the market downturn before recovering some ground in calendar year 2009.
Most states' retirement systems allow for the "smoothing" of gains and losses over time, meaning that the pain of investment declines is felt over the course of several years. The funding gap will likely increase when the more than 25 percent loss states took in calendar year 2008 is factored in.