States Can Fund Less Than Half of Their Pension Obligations

Investing & Retiring, Pensions

States across the nation are unable to fund all of the pensions owed to retired state workers. The national total of unfunded state liability for these pensions reached a staggering $4.7 trillion in 2014, the highest amount ever. As citizens who continue to be taxed for state wages and expenses, we may rightfully wonder how it got to such a sad state (pun intended).

To start, there are now less people contributing to more pensions. Due to the aging population, the ratio of active public employees to retirees has dropped from 7 to 1 in 1950 to 1.75 to 1 today, increasing the impact of any changes or losses to pension investments. On a national scale, this situation is set to worsen in the years to come. There are currently four U.S. taxpayers for every retiree, but by 2030, there will only be two taxpayers to one retiree.

Many state employees have learnt to work the generous pension system in their favor, which has placed a heavier burden on states to meet their pension liabilities. State workers like those in the police and fire department may retire after twenty years of service and collect 70% of their pay from the five years with their highest salaries. Some workers with an eye to the future put in overtime towards the end of their career to push up their earnings, so they end up collecting more in retirement than they made while working.

Our infographic illustrates which states are in the worst shape.

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