Ticking Time Bomb In Your States Pension Fund? (Chart)

By | December 28, 2015

Summary: State pension funds have a serious underfunding issue! It’s ZIRP but it’s more!

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!

State Actuarial Assets Market Liability* Funding Ratio Unfunded Liability Unfunded Liability Per Capita
Alabama $29,419,597 $94,436,581 31% $65,016,984 $13,450
Alaska $9,830,274 $39,700,280 25% $29,870,006 $40,639
Arizona $31,866,927 $90,652,039 35% $58,785,112 $8,871
Arkansas $21,504,868 $61,485,975 35% $39,981,107 $13,512
California $476,133,354 $1,230,182,696 39% $754,049,342 $19,671
Colorado $43,148,568 $136,245,697 32% $93,097,129 $17,672
Connecticut $25,765,325 $112,357,458 23% $86,592,133 $24,080
Delaware $8,172,154 $18,287,400 45% $10,115,246 $10,924
Florida $131,680,615 $315,080,836 42% $183,400,221 $9,380
Georgia $70,119,741 $172,429,158 41% $102,309,417 $10,239
Hawaii $12,748,828 $43,428,744 29% $30,679,916 $21,852
Idaho $12,427,219 $28,764,344 43% $16,337,125 $10,135
Illinois $95,040,320 $426,619,820 22% $331,579,500 $25,740
Indiana $27,348,958 $75,343,595 36% $47,994,637 $7,304
Iowa $27,018,839 $66,592,672 41% $39,573,833 $12,807
Kansas $14,562,765 $51,494,605 28% $36,931,840 $12,762
Kentucky $26,011,522 $109,411,647 24% $83,400,125 $18,976
Louisiana $36,292,411 $120,761,745 30% $84,469,334 $18,264
Maine $11,452,000 $27,443,348 42% $15,991,348 $12,042
Maryland $39,561,707 $122,934,555 32% $83,372,848 $14,062
Massachusetts $42,974,758 $147,019,968 29% $104,045,210 $15,545
Michigan $57,209,849 $193,562,650 30% $136,352,801 $13,779
Minnesota $48,822,058 $140,704,151 35% $91,882,093 $16,952
Mississippi $20,928,447 $76,926,497 27% $55,998,050 $18,722
Missouri $50,188,100 $135,964,067 37% $85,775,967 $14,192
Montana $8,285,745 $23,115,583 36% $14,829,838 $14,611
Nebraska $9,581,947 $25,257,965 38% $15,676,018 $8,387
Nevada $29,186,193 $89,093,295 33% $59,907,102 $21,472
New Hampshire $6,112,228 $22,023,284 28% $15,911,056 $12,026
New Jersey $86,122,541 $286,272,593 30% $200,150,052 $22,491
New Mexico $22,459,639 $68,853,905 33% $46,394,266 $22,251
New York $238,027,500 $545,959,988 44% $307,932,488 $15,670
North Carolina $81,198,252 $162,199,270 50% $81,001,018 $8,225
North Dakota $3,570,622 $12,385,498 29% $8,814,876 $12,192
Ohio $152,370,215 $441,974,046 34% $289,603,831 $25,028
Oklahoma $22,608,163 $69,797,055 32% $47,188,892 $12,254
Oregon $49,265,900 $123,486,801 40% $74,220,901 $18,886
Pennsylvania $85,215,151 $267,049,559 32% $181,834,408 $14,235
Rhode Island $7,524,961 $24,409,768 31% $16,884,807 $16,050
South Carolina $29,882,998 $93,293,796 32% $63,410,798 $13,280
South Dakota $8,857,928 $16,894,527 52% $8,036,599 $9,511
Tennessee $36,680,782 $79,109,037 46% $42,428,255 $6,531
Texas $190,832,179 $486,932,011 39% $296,099,832 $11,196
Utah $23,405,396 $57,593,531 41% $34,188,135 $16,350
Vermont $3,468,330 $10,600,652 33% $7,132,322 $11,375
Virginia $53,069,000 $149,498,613 35% $96,429,613 $11,674
Washington $65,644,400 $154,233,284 43% $88,588,884 $12,708
West Virginia $10,432,348 $32,577,230 32% $22,144,882 $11,944
Wisconsin $78,613,000 $117,206,900 67% $38,593,900 $6,720
Wyoming $7,186,844 $18,670,574 38% $11,483,730 $19,698
TOTAL $2,679,831,466 $7,416,319,293 36% $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%.

How well are you prepared for retirement?

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

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