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posted on 29 December 2015

Unfunded State Pension Liability Of 4.7 Trillion! How Does Your State Stack Up?

by Michael Haltman

The potential time bomb of underfunded state pension funds lurks quietly in the background, unseen and unknown by most!

But like most issues that are ignored and that grow in size anyway, they don't go away but become known only when they reach crisis level.

In the corporate arena firms in the S&P 1500 that sponsor pension plans are 81% funded with an unfunded liability of $423 billion as of September 1, 2015 (Source). Generally a funded ratio of 80% is considered to be a healthy number.

A far different story for state government!

On the state government side, however, the average funded ratio (assets/liabilities) for the 50 states in 2014 was ONLY 36% ($2.7 trillion in assets with a $7.4 trillion liability) with an aggregate unfunded liability of $4.7 trillion (that's trillion with a T)! This compares to a funded ratio of 39% in 2013 and an unfunded liability of $4.1 trillion.

Part of the issue has of course been the unintended consequences of ZIRP or the 0% interest rate policy the Fed has had in effect for the past 7 or so years. It's also occurring despite the fact that the stock market has performed quite well since the 2009 post-financial crisis low.

Another issue, and one that takes the above issue into account, is the high rate of return that plan sponsors will typically assume that is difficult, if not impossible, to achieve under the aforementioned conditions in the fixed income market.

Finally, and going out on a limb, I would venture to guess that another issue is the fact that states may divert monies earmarked for pension funds into other state expenditures or, in other words, rob Peter to pay Paul.

The following is a chart from State Budget Solutions that will show you how your state stacks up...

How your state pension plan is doing!

StateActuarial AssetsMarket Liability*Funding RatioUnfunded LiabilityUnfunded Liability Per Capita
Alabama$29,419,597$94,436,58131%$65,016,984$13,450
Alaska$9,830,274$39,700,28025%$29,870,006$40,639
Arizona$31,866,927$90,652,03935%$58,785,112$8,871
Arkansas$21,504,868$61,485,97535%$39,981,107$13,512
California$476,133,354$1,230,182,69639%$754,049,342$19,671
Colorado$43,148,568$136,245,69732%$93,097,129$17,672
Connecticut$25,765,325$112,357,45823%$86,592,133$24,080
Delaware$8,172,154$18,287,40045%$10,115,246$10,924
Florida$131,680,615$315,080,83642%$183,400,221$9,380
Georgia$70,119,741$172,429,15841%$102,309,417$10,239
Hawaii$12,748,828$43,428,74429%$30,679,916$21,852
Idaho$12,427,219$28,764,34443%$16,337,125$10,135
Illinois$95,040,320$426,619,82022%$331,579,500$25,740
Indiana$27,348,958$75,343,59536%$47,994,637$7,304
Iowa$27,018,839$66,592,67241%$39,573,833$12,807
Kansas$14,562,765$51,494,60528%$36,931,840$12,762
Kentucky$26,011,522$109,411,64724%$83,400,125$18,976
Louisiana$36,292,411$120,761,74530%$84,469,334$18,264
Maine$11,452,000$27,443,34842%$15,991,348$12,042
Maryland$39,561,707$122,934,55532%$83,372,848$14,062
Massachusetts$42,974,758$147,019,96829%$104,045,210$15,545
Michigan$57,209,849$193,562,65030%$136,352,801$13,779
Minnesota$48,822,058$140,704,15135%$91,882,093$16,952
Mississippi$20,928,447$76,926,49727%$55,998,050$18,722
Missouri$50,188,100$135,964,06737%$85,775,967$14,192
Montana$8,285,745$23,115,58336%$14,829,838$14,611
Nebraska$9,581,947$25,257,96538%$15,676,018$8,387
Nevada$29,186,193$89,093,29533%$59,907,102$21,472
New Hampshire$6,112,228$22,023,28428%$15,911,056$12,026
New Jersey$86,122,541$286,272,59330%$200,150,052$22,491
New Mexico$22,459,639$68,853,90533%$46,394,266$22,251
New York$238,027,500$545,959,98844%$307,932,488$15,670
North Carolina$81,198,252$162,199,27050%$81,001,018$8,225
North Dakota$3,570,622$12,385,49829%$8,814,876$12,192
Ohio$152,370,215$441,974,04634%$289,603,831$25,028
Oklahoma$22,608,163$69,797,05532%$47,188,892$12,254
Oregon$49,265,900$123,486,80140%$74,220,901$18,886
Pennsylvania$85,215,151$267,049,55932%$181,834,408$14,235
Rhode Island$7,524,961$24,409,76831%$16,884,807$16,050
South Carolina$29,882,998$93,293,79632%$63,410,798$13,280
South Dakota$8,857,928$16,894,52752%$8,036,599$9,511
Tennessee$36,680,782$79,109,03746%$42,428,255$6,531
Texas$190,832,179$486,932,01139%$296,099,832$11,196
Utah$23,405,396$57,593,53141%$34,188,135$16,350
Vermont$3,468,330$10,600,65233%$7,132,322$11,375
Virginia$53,069,000$149,498,61335%$96,429,613$11,674
Washington$65,644,400$154,233,28443%$88,588,884$12,708
West Virginia$10,432,348$32,577,23032%$22,144,882$11,944
Wisconsin$78,613,000$117,206,90067%$38,593,900$6,720
Wyoming$7,186,844$18,670,57438%$11,483,730$19,698
TOTAL$2,679,831,466$7,416,319,29336%$4,736,487,827$15,052

(all numbers in thousands except for "Unfunded Liability Per Capita") *Market Liability is the Fair Market Valuation of the combined state plans' liability. The fair market valuation discount rate for 2013 is 2.734%.

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com.

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