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Unfunded Liabilities From State Government Pension a Major Threat, Report Finds

December 18, 2017 - 6:00am

The American Legislative Exchange Council (ALEC), the nation’s largest organization of state legislators, recently published a report on the growing problems state pension plans are causing.

ALEC‘s “Unaccountable and Unaffordable” report focuses on more than 280 state administered public pension plans and details their assets, liabilities and unfunded liabilities. The report highlights how unfunded liabilities of state employee pension plans currently stands at more than $6 trillion, a figure which continues to grow. Over the past year, those unfunded liabilities grew $433 billion. The report shows the national average funding ratio stands at 33.7 percent, amounting to $18,676 dollars of unfunded liabilities for every American.

The report notes several factors contributing to this growing problem including government officials relying on faulty math and economic calculations to determine the unfunded liabilities. The report also finds that many states use flawed methodology which some state governments refuse to acknowledge. 

Jonathan Williams, chief economist for ALEC and one of the authors of the report, told Sunshine State News there are several contributing factors which are  causing problems for states and their pensions systems, including state governments failing to make their annually required contributions to their own pension plans (ARC). Williams said when a state skips a current payment, it still has to be made down the road and noted that some state officials “showcase” unrealized investment returns. 

“When politicians posture about government pensions, yet the returns don’t come in as promised and the money isn’t there to make up the difference, it isn’t only current state workers and retirees that are affected by this unfunded pension crisis,” Williams said. “It’s also the taxpayers.”

ALEC is not alone is sounding the alarm on this issue as several other groups have also pointed to the growing problem. The National Association of State Retirement Administrators (NASRA) has noted the vast majority of states consistently fail to make full ARC payments with some states skipping payments altogether. According to a 2017 Pew Charitable Trusts report, only 32 states in the 2015 fiscal year made pension fund contributions sufficient enough to diminish accrued unfunded liabilities.

ALEC’s report also touched on Florida’s pension system which is facing a few problems. The Sunshine State slipped from 43rd last year to 44th in the most current rankings when it comes to overall unfunded pension liabilities. During that year, the raw unfunded pension liabilities grew from $210,153,896,482 to $226,527,273,092 – a $16 billion increase.  Per capita unfunded liabilities also grew worse in the past year, rising from $10,381 to $10,990 while the pension funding ratio fell from 40.5 percent to 39.1 percent.  

However, there was some good news in the report as Florida ranks eleventh on funded ratio and sixth when it comes to unfunded liabilities per capita.

Williams said that when taxpayers have to pay the bill for government employees, state and local governments are often strained to pay for the promised benefits included in traditional pension plans.

“All residents are impacted when pension costs absorb limited government resources that would normally go to fund core government services such as education, public safety, and roads,” Williams told Sunshine State News. 

ALEC noted that some states, including Arizona, Pennsylvania and Michigan, have moved to 401(k)s instead of pensions for state workers, an idea that Republicans in Tallahassee have kicked around a few times in recent years. 

However, Williams and the other authors of the report continued to warn about what will happen if elected officials don’t tackle the issue as unfunded liabilities continue to grow and threaten the financial security of retired government workers and taxpayers alike, saying that could be far worse and longer than the Great Recession.


Ed Dean, a senior editor with SSN whose talk show can be heard on radio stations across Florida, can be reached at him on Twitter: @eddeanradio

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