States can’t ingnore pension fund gap

Published 10:43 pm Thursday, February 18, 2010

States are tallying up hefty bills, and they may not be able to pay the tab when it comes due.

So says a survey released Thursday by the Pew Center on the States. The survey, which evaluated the states’ pension and retirement programs, warns that states must fill a $1 trillion pension gap between what is funded in the systems and what is owed to participants.

And, in many cases, states would be forced to reduce benefits, raise taxes or slash government services to address those shortfalls.

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According to the survey, states had $2.4 trillion in 2008 set aside to meet $3.4 trillion in promised pension, health care and other post-retirement benefits. The gap, which is staggering, could prove crippling to many states as more and more baby boomers opt for retirement and begin to claim their pensions and benefits.

In addition, the Pew Center evaluated each of the states’ retirement and pension plans for its fiscal health, rating them as “serious concerns,” “needs improvement” or “solid performers.” Criteria included whether a pension is at least 80 percent funded, whether it has an unfunded liability that is less than covered payroll and whether 90 percent of the required contribution has been made during the past five years on average. Surprising, Alabama earned a “needs improvement” grade, which may concern state employees, but should concern all taxpayers, who could stand to suffer if government services were impacted by the need to fund state pension shortfalls.

The crisis in state pension funding is just one of many facing state governments at the moment, but it is one that cannot be ignored. Doing so only delays the inevitable price that will be paid.