If the nation had an actuary-in-chief whose job it was to examine the 50 states' pension systems, he might declare that the state of the states is "bleak."
That's the word used by State Budget Solutions, a nonpartisan think tank on state fiscal issues that has appointed itself actuarial ombudsman on the states' unfunded pension liabilities, which now top $4.7 trillion, or over $15,000 for every American.
While an 80% "funded ratio" is conventional actuary-speak for a sound plan, or at least one we're not overly alarmed about, the states' plans fall short of that standard with a combined funded status of just 36%. And that funding level for 2013 is 3 percentage points lower than the previous year, despite robust stock market gains.
The level of investment returns is a relevant factor, since government pension plans have long been criticized for using unrealistic return assumptions, meaning that they will be able to make good on their pension promises through annual investment returns of, say, 8.5%.
While investment advisors understand that such goals may be overly optimistic, state budgeters may find it easier to rely on the market to deliver the growth they need to fund pensions.
That enables them to divert resources to other priorities.
Thus, the assumption of investment growth enables hard-pressed state governments to make modest or in some cases no actual contributions to their languishing pension funds.
The pension shortfalls also have implications for taxpayers.
They may end up retaining less of their income to fund their politicians' promises, or see expected services shrink as an increasing share of their state's budget goes to fund retiree pensions that are typically more generous than the defined contribution plans that have become the norm in the private sector.
With a funded ratio of just 36% of their pension obligations, on average, the result is that the most troubled states are at dire levels of funding while even the best-funded states have less than impressive funding status. Herewith are the 10 worst state pension systems, by funding ratio and a little added detail about per capita liability per state resident, according to State Budget Solutions' 2014 report.
10. North Dakota
Percent Funded: 29%
The per capita liability of the average North Dakota resident is $12,192.
9. Massachusetts
Percent Funded: 29%
The per capita state pension liability of the average Massachusetts resident is $15,545 — higher than the national average of $15,052.
8. Hawaii
Percent Funded: 29%
The per capita liability of the average Hawaii resident is $21,852 — far higher than the national average.
7. New Hampshire
Percent Funded: 28%
The per capita liability of the average New Hampshire resident is $12,026.
