The Widening Gap
The Great Recession's Impact on State Pension and Retiree Health Care Costs
- States' Fiscal Health
- State Health Care Spending
- Contact Brian Keegan 202.540.6677
- April 25, 2011
Estimating State Pension Funding: 4.38 Percent Rate of Return
States make assumptions about investment rates of return when they calculate how much money to set aside to pay for their employees’ pension benefits. The table below illustrates the impact of a 4.38 percent rate of return.
Some experts suggest that states should use a risk-free rate to discount future costs rather than their assumed rate of return or the FASB rate. We use a 30 year Treasury bond rate—4.38 percent as of mid-March 2011—to recalculate what liabilities would look like using an approximation of a risk-free rate. Using such an approach, unfunded liabilities would shoot up to $2.4 billion.
Liability Using 4.38% | Funding Gap | Pct. Funded using 4.38% | Reported Pct. Funded | Increase in the Funding Gap | |
| Alabama | $66,291,508 | $35,528,410 | 46% | 74% | $24,656,954 |
| Alaska | $25,066,105 | $15,690,604 | 37% | 61% | $9,718,337 |
| Arizona | $71,006,697 | $36,797,126 | 48% | 78% | $26,928,303 |
| Arkansas | $36,126,595 | $18,529,442 | 49% | 78% | $13,427,689 |
| California | $766,355,983 | $370,454,396 | 52% | 81% | $275,766,865 |
| Colorado | $86,834,365 | $49,235,377 | 43% | 69% | $32,297,816 |
| Connecticut | $69,254,835 | $43,801,935 | 37% | 62% | $27,943,435 |
| Delaware | $12,125,045 | $4,939,395 | 59% | 94% | $4,509,879 |
| Florida | $219,329,665 | $100,289,834 | 54% | 84% | $77,844,385 |
| Georgia | $120,505,406 | $50,949,469 | 58% | 87% | $40,606,996 |
| Hawaii | $26,349,814 | $14,968,853 | 43% | 69% | $9,800,745 |
| Idaho | $18,691,467 | $9,760,567 | 48% | 74% | $6,633,967 |
| Illinois | $211,806,716 | $147,810,297 | 30% | 51% | $85,371,206 |
| Indiana | $54,928,551 | $30,367,420 | 45% | 67% | $18,003,706 |
| Iowa | $40,159,147 | $18,641,861 | 54% | 81% | $13,556,631 |
| Kansas | $33,656,745 | $20,195,524 | 40% | 64% | $12,518,539 |
| Kentucky | $54,319,698 | $33,551,915 | 38% | 58% | $18,632,961 |
| Louisiana | $64,456,005 | $40,649,357 | 37% | 60% | $24,798,081 |
| Maine | $22,338,299 | $11,871,399 | 47% | 73% | $7,928,299 |
| Maryland | $82,230,712 | $47,810,197 | 42% | 65% | $29,176,147 |
| Massachusetts | $99,921,716 | $58,551,265 | 41% | 68% | $38,781,381 |
| Michigan | $116,063,296 | $58,553,796 | 50% | 79% | $43,151,396 |
| Minnesota | $101,984,977 | $55,105,410 | 46% | 77% | $41,149,626 |
| Mississippi | $49,974,710 | $28,880,242 | 42% | 67% | $18,587,963 |
| Missouri | $89,035,239 | $45,144,646 | 49% | 79% | $33,720,243 |
| Montana | $16,171,741 | $8,539,761 | 47% | 74% | $5,900,714 |
| Nebraska | $14,972,182 | $6,711,785 | 55% | 88% | $5,544,812 |
| Nevada | $52,779,571 | $28,763,678 | 46% | 72% | $19,631,224 |
| New Hampshire | $14,295,139 | $9,307,219 | 35% | 58% | $5,765,146 |
| New Jersey | $220,496,336 | $131,376,805 | 40% | 66% | $85,568,111 |
| New Mexico | $46,179,829 | $24,092,858 | 48% | 76% | $17,176,467 |
| New York | $233,631,704 | $84,770,704 | 64% | 101% | $86,898,704 |
| North Carolina | $112,869,858 | $38,422,746 | 66% | 97% | $35,893,316 |
| North Dakota | $7,120,501 | $3,478,401 | 51% | 81% | $2,644,701 |
| Ohio | $272,579,670 | $159,522,721 | 41% | 66% | $101,385,299 |
| Oklahoma | $54,183,775 | $34,201,412 | 37% | 57% | $19,368,531 |
| Oregon | $90,455,162 | $41,725,962 | 54% | 86% | $33,644,562 |
| Pennsylvania | $177,242,638 | $87,256,038 | 51% | 81% | $65,924,938 |
| Rhode Island | $18,795,158 | $12,043,074 | 36% | 59% | $7,294,732 |
| South Carolina | $66,954,107 | $38,082,537 | 43% | 69% | $24,903,406 |
| South Dakota | $11,620,818 | $4,746,471 | 59% | 92% | $4,125,923 |
| Tennessee | $53,087,897 | $21,448,243 | 60% | 90% | $17,889,156 |
| Texas | $247,876,059 | $116,892,797 | 53% | 84% | $92,196,855 |
| Utah | $37,668,453 | $16,850,023 | 55% | 86% | $13,369,270 |
| Vermont | $6,542,935 | $3,619,811 | 45% | 73% | $2,529,980 |
| Virginia | $104,271,677 | $49,148,677 | 53% | 80% | $35,136,677 |
| Washington | $91,931,057 | $34,768,957 | 62% | 99% | $34,176,357 |
| West Virginia | $21,517,082 | $13,540,052 | 37% | 56% | $7,250,663 |
| Wisconsin | $123,292,055 | $44,380,755 | 64% | 100% | $44,187,455 |
| Wyoming | $11,785,022 | $5,213,862 | 56% | 89% | $4,383,408 |
| Source: Pew Center on the States, 2011 | |||||
Report Assets
Expert
Kil Huh is director of the States’ Fiscal Health Project.
Video
Watch Sue Urahn, managing director for the Pew Center on the States, discuss the scope of the pension and retiree health benefit problem.
- Date:
- April 25, 2011
- Contacts:
- Brian Keegan | 202.540.6677
- Project:
- States' Fiscal Health , State Health Care Spending
- Issues:
- Pensions, Retiree Health Care, Retiree Health Care Costs
- State:
- National
Related RESEARCH & ANALYSIS
-
- Issue Brief
- Public Sector Retirement Systems
Arizona Pension Challenges
Pension problems, such as those in Arizona, are rooted in simple math, rather than in political ideology. Real pension reform is not easy. more
-
- Issue Brief
- Public Sector Retirement Systems
Montana's Pension Challenges
Pension problems, such as those in Montana, are rooted in simple math, rather than in political ideology. Real pension reform is not easy. more
-
- Issue Brief
- States' Fiscal Health
Public Attitudes on Pension Reform in Kentucky
Recent polling indicates that Kentucky voters favor moving to a new retirement system for future public employees. Large majorities favor specific reform proposals, including the core provisions that would comprise a new retirement system. more