States’ Retiree Benefits Underfunded By At Least $1 Trillion

State governments' retiree pension and health plans are severely underfunded, according to a new report from the Pew Center on States.

The Wall Street Journal: "States promised current and retired workers a total of $3.35 trillion in benefits through June 30, 2008" but "contributed only $2.35 trillion to their benefit plans to pay current and future bills ... states generally have little set aside to cover retiree health-care and other nonpension benefits. The Pew report found states, on average, have funded only 7.1% of these expected costs, and 20 states have no money in reserve for the bills. The report suggested that states consider lowering benefit levels and increasing the retirement age for new employees. In the past two years, 10 states increased required employee contributions to their benefit plans, the report said" (Merrick, 2/18). 

USA Today: "States that don't address their legal obligations to pay future pensions and retiree health benefits for their public employees may have to raise taxes, says Susan Urahn, managing director of the Pew study." The report adds that "only two states -- Alaska and Arizona -- have pre-funded more than 50% of their obligations to pay retiree health benefits. Twenty states address retiree health benefits on a pay-as-you-go basis instead of setting up trust funds"  (Tumulty, 2/18).

NPR: Urahn "says many states may be in worse shape than they appear because they use an accounting technique called smoothing. They average out the value of their investments over five years or so, which tends to obscure the depth of their losses in times when the financial markets have taken a hit, like they have in recent years" (Zarroli, 2/18).

MarketWatch: "Investment losses account for part of the funding gap. But the bigger problem, according to Pew, is that many states simply fell behind on their payments to cover the cost of promised benefits -- and that was even before the Great Recession. ... To be fair, not all states are in the same pickle. In all, Pew said just 16 states are 'solid performers'; meanwhile, 19 are in serious trouble" (Powell, 2/18).