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March 29, 2010 at 08:00 PM
An analysis by the Pew Center on the States showed that at the end of FY2008 ended June 30, states and participating localities had set aside $2.4 trillion to pay from employees’ retirement benefits, while the cost of those promises clocked in at $3.4 trillion. Worse, that calculation didn’t take into account the second half of 2008, when states’ pension fund investments suffered significant losses in the market downturn, which were only partly made up in 2009.
The $1 trillion gap, Pew said, owes to states’ failure to meet levels of annual payments recommended by their own actuaries; expanding benefits and offering cost-of-living increases without figuring out how to pay for them; and providing healthcare to retirees without adequately funding it.
Failures to fully pay for their retirement obligations and investment losses in the dot-com downturn have pushed up states’ annual required contributions. Between 2000 and 2008, Pew found, state and local governments’ pension benefits bill increased by 135%, and seemed certain to rise in 2009 and later. In 2008, states and local governments owed $64 billion, and on top of that had a tab for $43 billion for retirees’ healthcare benefits.
