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State pensions — it’s not Greece

By Jennie L. Phipps ·
Monday, June 18, 2012
Posted: 6 pm ET

Here's the latest on state employee pensions for which funding took a nose dive in 2008, when the economy went south, putting almost all retirement planning in a tailspin.

States are still struggling to pay the ongoing and new costs of employees' pensions and retiree health care, according to an analysis by the Pew Center on the States, which today updated previous findings.

In 2010 -- the most recent year for which numbers are available -- the difference between states' assets and their retirement benefit obligations was $1.38 trillion. Some $757 billion are pension promises, and another $627 billion are the health care shortfall. That's a 9 percent increase in the overall liability compared to 2009.

Most experts say that a healthy pension system should be at least 80 percent funded. In 2000, more than half of the states were 100 percent funded. But thanks to the meltdown and the ensuing era of low returns, 34 states were below 80 percent in 2010. Connecticut, Illinois, Kentucky and Rhode Island were less than 55 percent that year. On the other end of the spectrum, four states -- North Carolina, South Dakota, Washington and Wisconsin -- were funded at 95 percent or greater in 2010.

Most states aren't ignoring the problem. Forty-three states have cut benefits, increased employee contributions or both. Ten states have trimmed cost-of-living adjustments, or COLA. These changes have resulted in a number of court challenges, but judges in Colorado, Minnesota, New Jersey and South Dakota have approved the COLA trims, although appeals are likely.

What does all of this mean? Kil Huh, director of research for the Pew Center on the States, says the organization doesn't have a crystal ball, but the reforms that states have enacted in the last three years, while significant, won't have much impact on what the states must pay to cover promised benefits for current employees and retirees -- a big nut with so many boomers calling it quits. Nevertheless, he says, most states generally have enough in the kitty to pay their obligations for the next 10 or 15 years.

If you're concerned about your own situation, the Center for Retirement Research at Boston College, which did a similar analysis in November 2011, isn't as shy about offering projections. It calculates that under the "most likely of three stock market scenarios," the funded ratio among all the states will rise to 82 percent by 2015.  After that, unless financial markets collapse again, the public pension landscape will continue to improve.

That's not great news, but it's not so terrible either. It's not Greece.

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June 25, 2012 at 3:02 pm

Public Sector employees are still underpaid versus the Private Sector. The pension systems are obligated to pay what was promised. If they do not pay out what was promised, the Attorney Generals should be called in and prosecute everyone who did not effectly manage or stole from the retirement funds.

June 19, 2012 at 12:42 am

Public Pensions originally started to compensate later for low pay now. With Public jobs paying near par with private, 30 year full pay pensions are just insane.