Forgive state employees in Kentucky if they get a little queasy when you start talking about retirement plans. Meanwhile, an employee on a state pension in Wisconsin might want to talk your ear off about it over a pint or three of Leinenkugel’s.
While a handful of states are on solid ground with their public pension plans, generally the news and condition is not so good (surprise!).
The state pension funding gap—the difference between a retirement system’s assets and its liabilities—for all 50 states remains more than $1 trillion, according to a recent Issue Brief from The Pew Charitable Trust, The State Pension Funding Gap: 2017.
Overall in 2017, states had just 69% of the assets they needed to fully fund their pension liabilities—ranging from a putrid 34% in Kentucky to a tasty 103% in Wisconsin. In addition to Kentucky, four other states—Colorado, Connecticut, Illinois, and New Jersey—were less than 50% funded, and another 15 states had less than two-thirds of the assets they needed to pay their pension obligations.
Only Idaho, Nebraska, New York, North Carolina, South Dakota, Tennessee, and Utah joined Wisconsin in being at least 90% funded.
3 Best Funded State Pension Plans
- Wisconsin: 102.6%
- South Dakota: 100.1%
- Tennessee: 96.5%
3 Worst Funded State Pension Plans
- Kentucky: 33.9%
- New Jersey: 35.8%
- Illinois: 38.4%
National Average: 69.1%
Source: The Pew Charitable Trusts, The State Pension Funding Gap: 2017
A little more context…
The Pew Issue Brief notes the disparity between well-funded public pension systems and those that are fiscally strained has never been greater.
Although every state experienced investment losses during the 2007-09 Great Recession, the eight states with the best-funded retirement systems rebounded and were, on average, 95% funded by 2017. Conversely, the 20 states with the lowest-funded pension plans saw the financial position of their systems decline steadily from 76% funded in 2007 to 56% in 2017.
Ultimately, differences in state pension funding levels are driven by policy choices. Kentucky, New Jersey, and Illinois have the worst-funded retirement systems in the nation in part because policymakers did not consistently set aside the amount their own actuaries said was necessary to cover the cost of promised benefits to retirees. As a result, the pension funds in those three states had less than half of the assets needed to cover liabilities in 2017.
No state pension system is in more dire shape than Kentucky’s, which has $33 billion in unfunded liabilities across eight pension plans according to an April 28, 2019 article on HuffPost about the state’s pension troubles. Kentucky Retirement Systems, which oversees five of those plans and manages retirement assets for most state workers (other than teachers and judges), is in even worse shape: At the end of 2018, it held just 12.9% of the assets it will need to pay out, making it the worst-funded public pension plan in the country.
On the other end of the spectrum, South Dakota, Tennessee, and Wisconsin—the three states with the best-funded pension plans in 2017—have all paid 100% of the contributions that actuaries recommended. These states also follow policies to automatically lower benefits or increase contributions in response to market downturns. As a result, retirement systems in these states were nearly fully funded or had surplus funding in 2017 while maintaining stable contribution rates.
The 230 plans included in Pew’s data cover state employees, teachers, police officers, firefighters, university professors, and other state and local public employees.
In 2017, the state pension funds in this study cumulatively reported a $1.28 trillion funding gap—an improvement from the $1.35 trillion deficit in 2016, driven primarily by strong investment returns of about 13% for the median plan.
SEE ALSO:
- Complete state-by-state rankings: The State Pension Funding Gap: 2017
- Public Pensions Rebound in Q1 2019
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
