Report: States face $1 trillion pension shortfall

Chris Rizo Feb. 18, 2010, 1:37am

WASHINGTON (Legal Newsline)-U.S. states have a collective funding gap of at least $1 trillion to provide the retirement benefits they have promised to public-sector employees, a national report issued Thursday said.

At the end of fiscal year 2008, state and local governments had socked away $2.35 trillion for health care and other retirement benefits for their workers that were estimated to cost $3.35 trillion, the Pew Center on the States found.

In its report, the Washington-based Pew Center identified 19 states' public employee pension systems that merited "serious concern."

Illinois public pensions are in the worst actuarial shape, with only 54 percent of pension obligations funded. Illinois had set aside less than 1 percent of the funds it needs to provide the $40 billion in health care and other benefits for public retirees, the study said.

Unlike private-sector employers, states and local governments are not required to pump money into their pension funds each year. Rather, most depend on non-binding suggestions from actuaries.

The Pew Center's managing director, Susan Urahn, said it should be no surprise that state pension funds are in trouble.

"Over the last 10 years, many states have shortchanged pension plans in good times and bad," she said.

Analysts said that state and local governments will have to come up with the money somehow, saying that the shortfall could mean higher taxes.

Pew suggested that states consider increasing the retirement age for new employees, trimming benefits to help their funds make ends meet and making employees pay more into the retirement system.

From Legal Newsline: Reach staff reporter Chris Rizo at

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