Connecticut Among States With Worst Public Pension Deficits
By CHRISTOPHER WILLS, Associated Press
SPRINGFIELD, Ill. (AP) _ As the recession took its toll many states diverted scarce money away from pension plans to pay for more immediate concerns, and the amount of new costs states will owe the public retirement funds in the decades ahead ballooned to $757 billion, according to a study released Monday.
The Pew Center on the States found 34 states failed to maintain safe levels of money in the pension funds, which most experts agree is about 80 percent of long-term obligations. Four states– Connecticut, Illinois, Kentucky and Rhode Island– didn’t even have 55 percent of the money they’ll need in the long run.
The total gap between the money states had available and what they’ll have to pay out in the decades ahead reached $757 billion in 2010, the most recent year for which figures are available. That was up 9 percent from the year before, according to the study entitled “The Widening Gap Update.”
The Pew Center found most states were trying to address the funding gap, either through cutting benefits for future employees or requiring workers to pay more of their own money into their retirement funds. Some went after benefits for current employees, triggering court battles. States also adopted more conservative estimates for what they’ll earn on investments down the road.
Pensions aren’t the only retirement problem. States also faced a $627 billion shortfall in health care services for retirees.
Essentially, for every $1 they’ll eventually have to pay out in health care, states had set aside only 5 cents.
“So why should Americans care about these funding gaps? Because the larger they are the higher the cost to taxpayers today and for many years to come,” said David Draine, a senior researcher for the Pew Center on the States.
Nationwide, some 22.5 million public workers fall under a state pension plan. When states fall behind in their retirement contributions, they’ll have to come up with even more money later to make up the difference. In addition, pension and retiree health costs are growing, driving up state expenses even more. That leaves states less and less each year to spend on education, public safety and other government services.
While the new report looks at figures from 2010, pension expert Robert Rich, said there’s no reason to think the situation has improved significantly.
Rich, executive director at the University of Illinois’ Institute of Government and Public Affairs, stressed that the recession was not the chief cause of the pension problem, although it contributed by eating away at the value of investments. For years, states failed to pay their full share of pension costs, he said, so the problem won’t be wiped away if the economy improves.
“It took us a long time to get into this hole, and it’s going to take a long time to get out of it,” Rich said.
The Pew Center said that from 2009 to 2011, 43 states cut benefits for future employees, required them to pay more or did both. And six states took similar action in 2012.
Some states also cut benefits for people who have retired already. However, public-employee unions argue that amounts to breaking a contract, and some state constitutions impose tough restrictions on cutting benefits. So going after benefits for current employees and current retirees can result in legal challenges.
Staff at the Pew Center said Rhode Island has been most aggressive in overhauling its pension systems to cut costs. The state, whose systems were only 49 percent funded in 2010, decided to cut retirement benefits for current employees as well as those hired in the future. Officials limited cost-of-living increases, raised the retirement age from 62 to 67 and changed the formula for calculating benefits.
They also put workers in a new hybrid retirement system that combines elements of the traditional system where retirees are guaranteed a certain level of benefits and new 401(k)-style systems were money is invested on behalf of the retiree.
Rich, from the University of Illinois, questioned the emphasis on cutting benefits when much of the pension problem was created by states failing to contribute their share to retirement systems. States also should be promising to put more money into retirement systems over the long run, he said.
“It’s neither shared sacrifice nor fairness if it’s only employees who are paying for the problem,” Rich said.
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(Copyright 2012 by The Associated Press. All Rights Reserved.)
By The Associated Press
SPRINGFIELD, Ill. (AP) _ Few states have enough money in their retirement systems to cover all the pensions they’re required to pay in coming decades. Economic problems have decreased the value of their investments, and many states have simply failed to contribute their full share to retirement systems.
Experts say retirement systems should have assets to cover at least 80 percent of the money they owe in the long run.
Here’s a look at the 10 states with the lowest funding percentages in 2010, according a new report from the Pew Center on the States:
1. Illinois: Had 45 percent of the $138.8 billion it owes long-term. Consistently failed to make its full pension contribution from 2005 to 2010. Lowered pension benefits for future employees in 2010. Now officials are negotiating a proposal to reduce cost-of-living increases for both current and future employees.
2. Rhode Island: Had 49 percent of the $13.4 billion it owes long-term. Consistently made full pension contributions from 2005 to 2010. Overhauled its pension system last year, creating a new hybrid retirement plan, cutting cost-of-living increases, increasing the retirement age and more.
3. Connecticut: Had 53 percent of the $44.8 billion it owes long-term. Made full pension contribution three times from 2005 to 2010. Cut pension and retiree health benefits in 2011. The governor has proposed a plan to reach 80 percent funding by 2025.
4. Kentucky: Had 54 percent of the $37 billion it owes long-term. Failed to make full pension contribution from 2005 to 2010. Lawmakers raised the retirement age and changed benefit calculations in 2008 and have suspended cost-of-living increases the next two years.
5. Louisiana: Had 56 percent of the $41.4 billion it owes long-term. Failed to make full pension contribution three times from 2005 to 2010. Lawmakers approved benefit cuts for new employees in 2009 and 2010. In 2012, a hybrid pension plan was created for new employees.
6. Oklahoma: Had 56 percent of the $36.4 billion it owes long-term. Failed to consistently make full pension contribution from 2005 to 2010. Increased the retirement age for new employees in 2011 and limited cost-of-living increases for retirees.
7. West Virginia: Had 58 percent of the $15 billion it owes long-term. Failed to make full pension contribution twice from 2005 to 2010. Cut pension benefits in 2011.
8. New Hampshire: Had 59 percent of the $9 billion it owes long-term. Failed to make full pension contribution twice from 2005 to 2010. Cut benefits in 2009 and 2011, including raising the retirement age and increasing contributions from current and new employees. Increased contributions struck down by court.
9. Alaska: Had 60 percent of the $16.6 billion it owes long-term. Made its full pension contribution twice from 2005 to 2010. Created a 401(k)-style pension plan in 2006, but most employees remain in old defined-benefit plan.
10. Hawaii: Had 61 percent of the $18.5 billion it owes long-term. Paid its full pension contribution every year but one from 2005 to 2010. Increased contributions from taxpayers and employees in 2011 and also trimmed retiree cost-of-living increases.
(Copyright 2012 by The Associated Press. All Rights Reserved.)