The Pew Center Center on the States has released an updated report on the status of pension and health care funding in the states. Since last year the total unfunded liability for these two employee benefits combined has increased 26% to $1.26 trillion. The unfunded pension gap represents $660 billion of the total. About 31 states are funded below 80 percent based on this measure of the liability.
The Pew Center’s study relies on the discount rates as reported by the states to determine the size of the liability which means if applying the risk-adjusted rate the liability is significantly higher. They estimate when applying the risk-adjusted rate the unfunded liability for pensions alone amounts to between $1.8 and $2.4 trillion.
What explains the “Widening Gap”? According to Pew revenue declines in 2009 made it more difficult for states to make their contributions, which given future revenue projections may remain the case for awhile. The second reason is investment losses that occurred in 2009, and is due to the practice of recognizing asset losses over a period, rather than all at once. In FY 2010, preliminary data show some asset recovery.
On the health care front the picture is even more serious. Retiree health benefits were only 5 percent funded in 2009 with 19 states setting aside no funds for health benefits.