The Trillion Dollar Gap: Kentucky

Kentucky's management of its long-term pension liability is cause for serious concern, but is doing a relatively good job in handling the bill coming due for its retiree health care and other benefits. The state has funded only 64 percent of its pension bill—well below the 80 percent benchmark that the U.S. Government Accountability Office says is preferred by experts—a result of its failure to fully pay the actuarially required contribution since 2003.

The Bluegrass State's pension system had a surplus in 2001, but now faces an unfunded liability of $12.3 billion. Kentucky's legislature passed a bill in 2008 that changed the benefit calculation for new general state and county employees. Similar legislation was passed for new teachers and school employees. In addition, the retirement age was increased for new state employees.

Meanwhile, Kentucky ranks seventh in the country in funding its long-term bill for retiree health care and other benefits, although only 10 percent of the cost is covered.