New Study Exposes Ballooning State Retirement Shortfalls

By Rachel Whitt

The Pew Center on the States released a study Tuesday showing that the total state pension and retiree gap reached $1.26 trillion in FY 2009.

“As we pointed out last year, the states dug themselves a big hole before the great recession ever hit,” said Susan Urahn, the managing director of Pew Center on the States. “Over the last decade, it was all too common for state leaders to skip or shortchange their annual retirement contributions and increase retiree benefits without checking the price-tag or figuring out how to pay the larger long-term bill.”

Pew’s study shows that the gap between states’ promised employee pensions and the money actually set aside to fund those pensions has worsened significantly during a one year period. Between FY 2008 and FY 2009, the gap grew by 26%, or $250 billion. 

“The larger [the gaps] are, the higher the cost to taxpayers today and for many years to come,” Urahn explained.

The study follows a report the Center released last year entitled, “The Trillion Dollar Gap,” which Pew conducted to “help build high performing states….[that] achieve long-term fiscal health.”

Urahn said that policy-makers in states must now take a long-overdue look how they have “managed or failed to manage” the cost of public employees’ retirement benefits. 

“Our research is based on state’s comprehensive annual financial reports and pension plan annual reports,” Urahn said. “Each state makes a number of assumptions about factors like how much they will earn on retirement fund investments and their employees life expectancy and retirement dates. Pew’s analysis uses states’ own assumptions.” 

Urahn said that states are attempting a variety of ways to close the gap, including reducing state liability for pensions, hanging benefit levels, and requiring employees to withhold more from their paychecks to their own retirement account.