A new report from the American Legislative Exchange Council (ALEC) shows that state public pensions throughout the country are now underfunded by an astounding $5.6 trillion.
The report finds that pension funding gaps are much larger than initially listed in official state financial documents, finding that the average American price tag for unfunded pension liabilities is $17,427. And for every dollar spent filling the gap in public pensions, a dollar is taken away from core government services, putting many legislators in the difficult position of deciding whether to cut core services or raise taxes.
The report considers three important metrics to measure the severity of the pension problem: unfunded pension liability per capita, the funded ratio and total unfunded pension liability. Unfunded pension liability per capita reveals the personal share of liability for every resident in each state. The funded ratio represents how well a given state’s pension plans are funding their pension promises and the total unfunded pension liability reveals the fiscal strain on state budgets in raw dollar terms.
Currently all 50 states show a significant funding gap regarding pension plans. Statistically the most populous states with the largest government workforces tend to have the largest unfunded liabilities, such as California with a whopping $956 billion. Whereas, smaller states who employ fewer workers, such as Vermont and North Dakota, face smaller financial woes.
The new report also suggests that the only way to solve this growing problem is for states is to enact meaningful pension reform, stating: “While some might feel that America’s public pension crisis only threatens current workers and retirees, it is in fact a problem that affects everyone. Taxpayers are on the hook for the legal obligation to cover the promised benefits of traditional, defined-benefit pension plans.”