As the recession took its toll, many states diverted scarce money away from pension plans to pay for more-immediate concerns, and the amount of new costs states will owe the public retirement funds in the decades ahead ballooned to $757 billion, according to a study released Monday.
According to the Pew Center on the States, 34 states, including Ohio and Pennsylvania, failed to maintain safe levels of money in the pension funds, which most experts agree is about 80 percent of long-term obligations. Four states — Connecticut, Illinois, Kentucky and Rhode Island — didn’t even have 55 percent of the money they’ll need in the long run.
The total gap between the money states had available and what they’ll have to pay out in the decades ahead reached $757 billion in 2010, the most-recent year for which figures are available. That was up 9 percent from the year before, according to the study.
The Pew Center found most states were trying to address the funding gap, either through cutting benefits for future employees or requiring workers to pay more of their own money into their retirement funds. Some went after benefits for current employees, triggering court battles. States also adopted more- conservative estimates for what they’ll earn on investments down the road.
Pensions aren’t the only retirement problem. States also faced a $627 billion shortfall in health-care services for retirees. Essentially, for every $1 they’ll eventually have to pay out in health care, states had set aside only 5 cents.
“So why should Americans care about these funding gaps? Because the larger they are, the higher the cost to taxpayers today and for many years to come,” said David Draine, a senior researcher for the Pew Center on the States.