If the nation had an actuary-in-chief whose job it was to examine the 50 states' pension systems, he'd have to declare the state of even the strongest state systems "weak."
That is because a "funded ratio" of 80% is the conventional benchmark for a plan that can be called "actuarially sound," though the more financially conservative of the lot appreciate a figure closer to 100% of state obligations.
But the latest survey from State Budget Solutions, a nonpartisan think tank on state fiscal issues that has appointed itself actuarial ombudsman on the states' unfunded pension liabilities, shows even the best states don't reach the 80% threshold and, indeed, the average of all 50 states is worrisomely low 36%.
That's 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%.
(Check out 10 Scariest States Ranked by Pension Promises on ThinkAdvisor.)
Unsurprisingly, the best performing state on the list below used much more modest return assumptions. Nevertheless, the research shows that even the best-funded states have less than impressive funding status.
State Budget Solutions uses what it calls "fair market valuation" in its return assumptions, which yields lower funded ratios than the states report in their annual filings — which, at 72.5% on average, still fall short of that 80% goal.
Keep reading for the 10 best state pension systems, by funding ratio and with a little added detail about per capita liability per state resident, according to State Budget Solutions' 2014 report.
10. Florida
Percent Funded: 42%
Though in the top tier of state pensions, the average Floridian's per capita liability stands at $9,380.
9. Maine
Percent Funded: 42%
The per capita liability of the average Maine resident is $12,042.
8. Idaho
Percent Funded: 43%
The per capita liability of the average resident of Idaho is $10,135.
7. Washington
Percent Funded: 43%
The per capita liability of the average Washington resident is $12,708.
6. New York
Percent Funded: 44%
The per capita liability of the average New York resident is $15,670.
5. Delaware
Percent Funded: 45%
The per capita liability of the average Delaware resident is $10,924.
4. Tennessee
Percent Funded: 46%
The average Tennessean is on the hook for $6,531, the most favorable number on a per capita basis of the 50 states.
3. North Carolina
Percent Funded: 50%
The per capita liability of the average North Carolina resident is $8,225.
2. South Dakota
Percent Funded: 52%
The per capita liability of the average South Dakota resident is $9,511.
1. Wisconsin
Percent Funded: 67%
Wisconsin's pension system is nearly two-thirds funded, below the mythical 80% actuarially sound benchmark, though close to twice the national average of 36%.
State Budget Solutions calls it "no coincidence" that Wisconsin's assumed investment rate of return is a more modest 5.5%.
The per capita liability of the average Wisconsin resident is $6,720.
While these numbers might not warm an actuary's hearts, the 10 scariest states for pension promises, which we covered last week, may cause them serious palpitations.
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