PEW Study: States Have $1 Trillion Pension/Benefits Gap

Mish – PEW Study Shows Trillion Dollar State Pension Gap; Can Anything Be Done?

A $1 trillion gap. That is what exists between the $3.35 trillion in pension, health care and other retirement benefits states have promised their current and retired workers as of fiscal year 2008 and the $2.35 trillion they have on hand to pay for them, according to a new report by the Pew Center on the States.

Retiree health care and other non-pension benefits create another huge bill coming due: a $587 billion total liability to pay for current and future benefits, with only $32 billion—or just over 5 percent of the total cost—funded as of fiscal year 2008. Half of the states account for 95 percent of the liabilities.

And the actual numbers may be even worse, because most states’ reports haven’t taken 2008′s stock market decline into account:

All but three states—Idaho, Oregon and West Virginia—use a smoothing process in which investment gains and losses are recognized over a number of years. Smoothing is a way of managing state expenditures by preventing contribution rates from suddenly jumping or dropping. The number of smoothing years varies, with five years being the most common. Because only a portion of the 2008 losses will be recognized each year, there is a great likelihood that pension funding levels will be dropping for the next four to five years.