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January 2012 Policy Study, Number 12-1


Iowa's Privileged Class: Time for a Change!

    Overall Status of State Government Pension Plans


There are significant concerns with the funding levels and payment liabilities of government DB plans for state government workers. These concerns began in 2000 with the stock market crash of that year, and continued following the 2008 recession and stock market retrenchment.

Retirement accounts of all types — private defined benefit, private defined contribution, and state and local government accounts — all fell by 25 percent or more in 2008.[13] Their recovery since then has been uncertain, inconsistent, and weak.

According to the Boston College public plans database, using 2009 data, only two states have fully funded pension plans: New York and Wisconsin.

The five states with the lowest funding levels are Illinois (51 percent), West Virginia (56 percent), Oklahoma (57 percent) and Kentucky and New Hampshire (58 percent).[14]

The total national under-funding was almost $700 billion in 2009. That is up from an estimate of $452 billion in unfunded liabilities in 2008.[15] For 2010, the shortfall continued to increase, to almost $800 billion. The data for 2011 is not yet available for all states.

The funding amount considered “acceptable” or “standard” for a pension plan is 80 percent of liabilities. In FY2008, according to the Pew Center on the States, 41 states met the standard; however, as of FY2009, only 31 did.

This drop is indicative of the negative impact the 2008 recession and stock market drops had on the pension plans. As the Boston College data show, by 2010 the overall national funding had fallen to only 77 percent.

Another aspect of DB pension funding is whether or not the state government is actually paying into the fund all of the projected required contributions needed to meet the promised retirement payments. Many states do not fully fund their pension system each year because of budget issues.

This is similar to an individual not fully funding their IRA. In the short term it is a way to balance your budget, but in the long run the penalty is significant.

The states with the worst funding record in 2009 include Pennsylvania (31 percent paid), New Jersey (36 percent), and Kentucky (58 percent).[16] Pennsylvania and New Jersey appear to have made short-term cuts in order to balance their state budgets, but Kentucky seems to be continuing a long-term pattern of under-funding. So not only is the Kentucky plan currently under-funded, they are not making up the actuarial shortfall.


Aggregated Funding for All PPD Plans



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