A Ticking Budgetary Time Bomb

As if the states weren’t dealing with enough bad news already . . . .

The Pew Center on the States has released a study that concludes that our 50 states are, collectively, grossly underfunding their retirement benefit programs for state employees.  The study estimates that state liabilities for pension benefits and health care and other retirement benefits are underfunded by $1 trillion.  The programs have anticipated liabilities of $3.35 trillion, and are funded only to the tune of $2.35 trillion.  The gap is due to failure to make annual contributions to plans — probably so that legislators could spend that money elsewhere — and to decisions to offer richer benefits, cost of living increases, and expanded retiree health care without fully appreciating the liability consequences of such actions.

The link above allows you to find fact sheets that evaluate and grade the contribution efforts of each of the states.  Ohio comes out pretty well and is considered a “solid performer.”  The Buckeye State has funded almost 90 percent of its pension liabiity and more than 30 percent of its health care and other benefits.  In short, Ohio has been pretty responsible in recognizing, and budgeting for, its pension and retiree benefit programs.  Other states haven’t.  In Illinois, for example, more than 40 percent of the pension liabiity is unfunded.

During these tough economic times, states are struggling to find the funds to pay for basic services.  What are they going to do when the pension liability comes due?

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