State pension funds are awash in red ink: Here's your share

Mel Evans | AP

Pension protest

Years of underfunding and lackluster investment returns have left state pubic pensions even deeper in the hole — a shortfall taxpayers will eventually have to make up.

Some states are in much better shape than others, according to the latest data from S&P Global Ratings

In New Jersey, for example, the state has set aside just 38 percent of what it needs to make good on promises to current and future retirees, which leaves a shortfall that works out to $10,648 per person. Wisconsin, on the other hand, has slightly overfunded its public pension plans, which has left it with a small surplus.

After years of not setting aside enough money, state pension funds are looking at a $1 trillion shortfall in what they owe workers in benefits, according to a separate report from The Pew Charitable Trusts.

Those pension fund deficits are only part of a widening funding gap for retirement costs that are crowding out other state spending.

In the past two years, the unpaid bill for a budget category known as "other post-employment benefits" rose by 12 percent, to $554 billion. Most of that represents health-care benefits for retirees.

Increases like that are "unsustainable," S&P said in its report.

The report is based on 2015 figures, the latest available, which don't reflect cost improvements some states have seen.

"Nevertheless," the report said, "the growth in total state OPEB liabilities underscores the magnitude of liability growth states can experience over a short period of time."

Many state governments have given health-care benefits a lower funding priority than pension funds because, unlike pension payments, they are not protected by state constitutions.

Those protections mean that the bill for underfunded pensions will eventually come due, even in states where retirement plans have been cut back or eliminated for new workers.

But most states lost ground in fiscal 2015, according to S&P, in part because their investment returns came up short.

"After losses in 2008 and 2009, most U.S. state pension plans have not been able to recover to funded levels seen in the early 2000s," S&P said. "Investment returns in 2015 and 2016 are not going to make that path any easier."