Which States Have the Most Underfunded Pensions?
Pension funding is a hot topic in
the political world. Retirees who have worked their entire lives end up retiring
with very little to their name or have a very difficult time accessing their
funds. These problems vary from state to state, with underfunded pensions
accounting for the worst.
Many states promise a certain amount
for public employee retirement benefits, but don’t deliver in the end.
According to this post
from State Budget Solutions, last year’s unfunded pensions reached an all-time
high of $4.7 trillion. This funding gap is affecting every state, but for some
it hits harder than others.
1. Illinois
The most poorly funded state in
America, Illinois only funds 43.4 percent of its pensions. It has an unfunded
liability of $82.9 billion, with 20.7 percent going unfunded for each person.
2. Connecticut
The funded ratio for Connecticut is
55 percent with more than $20 billion in unfunded liability. The state owes
each person an average of $56,000, which makes up 18.6 percent of an
individual’s pension.
3. Kentucky
With a funding ratio at 53.4
percent, Kentucky is at nearly the top of the list for poorly funded pensions.
The average unfunded liability for each person was more than $16,000.
4. Kansas
With only 56.4 percent of the
states’ individual pensions funded, Kansas is a very difficult place to retire.
They owe $9.2 billion in unfunded liability and fail to pay an average of 10
percent per person.
5. Alaska
The funding ratio for Alaska is only
at 54.7 percent with more than $23 billion in unfunded liability and 27 percent
of an individual’s pension going unfunded.
6. New Hampshire
At a ratio for 57.4 percent funded,
New Hampshire has an unfunded liability of over $4 billion and an average of
$3,000 not delivered to an individual’s pension fund.
7. Mississippi
With unfunded liability reaching
nearly $50 billion and per-person unfunded liability at more than $16,000,
Mississippi has a funded ratio of just 57.6 percent, a record low for the
state.
8. Louisiana
The population of Louisiana is 4.65
million, but only 58.1 percent of those people receive their full pensions. The
unfunded liability is nearly $75 billion with per-person unfunded liability at
over $16,000.
9. Hawaii
40 percent of pensions go
underfunded in Hawaii, with nearly $40 billion in unfunded liability and a
whopping average of $20,000 in per-person unfunded liability.
10. Massachusetts
Finally, Massachusetts’s funding has
something to be desired with 60.8 percent of its inhabitants receiving their
full pensions. Their unfunded liability totals about $75 billion.
What’s Being Done About It?
This major lack of funding is one of
the biggest negative results of the 2008 recession, and the outlook isn’t good.
Many states’ fiscal health continue to suffer as the economy struggles to
regain its footing. Because of the lack of capital to back current pension
plans, there isn’t much that can be done to improve the current state of
pension funding, but there are several actions being taken by the most
underfunded states.
Many states are working to discount
liabilities based on the equivalent of a bond yield from the U.S. Treasury.
Using fair market valuation, the discount rate should help to balance out
public pension payments. The payments will still come up short,
but if the theory behind this method is correct, it should gradually bring the
funded ratio to a more reasonable rate.
Since these states don’t have the
capital or policies in place to boost the funded ratio to what it should be,
many public employees are choosing private pensions. Apart from being infinitely more reliable than state
pensions, this type of retirement account has a multitude of benefits. You can
continue to build on your pension and even retire at a younger age. Private
pensions are provided through banks, societies, investment and insurance
companies, and several general retailers outside the government, which means
more options and reliability in pension funding for you.
The Outlook
Unfortunately, though steps are
being taken across the country to improve pension funding, the outlook is grim
at best. In fact, according to CNBC, 85 percent of public pensions across the United States
could fail in the next 30 years. Based on the current speculation for state
investments, each state will come up short by about five percent per year,
meaning that they won’t be able to catch up, and even more pension
funds will fail in the years to come.
Public pension funding is under
constant review as legislatures and representatives struggle to come up with a
solution for this ever-growing problem. So, the question is this: What will you
do about your pension?
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