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The Trillion Dollar Gap Final

The Trillion Dollar Gap Final

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Published by: Christopher Schubert on May 31, 2011
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05/31/2011

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gap
The trillion dollar
Underunded stateretirement systemsand the roadsto reorm
FEBRUARY 2010
 
ii
Pew Center n the States
ii
 The Pew Center n the States is a divisin  The Pew Charitable Trusts that identies and advanceseective slutins t critical issues acing states. Pew is a nnprt rganizatin that applies a rigrus,analytical apprach t iprve public plicy, inr the public and stiulate civic lie.
PEW CENTER ON THE STATES
Susan K. Urahn, anaging directrPRojECT TEAm
Research Consultants
Katherine Barrett and Richard Greene, Pew Center n the States’ Senir Advisrs
ACKNOWLEDGMENTS 
 This reprt beneted treendusly r the insights and epertise  tw eternal reviewers: RnaldSnell  the Natinal Cnerence  State Legislatures and Keith Brainard  the Natinal Assciatin State Retireent Adinistratrs. These eperts prvided eedback and guidance at critical stagesin the prect. While they have screened the reprt r accuracy, neither they nr their rganizatinsnecessarily endrses its ndings r cnclusins.We thank ur Pew clleagues—Sean Greene, Natasha Kallay, Lauren Labert, mlly Lyns, matt mrse,jasn Newan, Gita Ra, Andy Snyder, Daniel C. Vck, jessica Willias and Denise Wilsn—r theireedback n the analysis. We thank Sarah Hlt, julia Hppck, Andrew mcDnald, matthew mulkey,jennier Peltak and Gaye Willias r their assistance with cunicatins and disseinatin. We alsthank Kathleen Litzenberg r her editrial assistance and jshua Rvner r his assistance with datacllectin. Finally, we thank the any state cials and ther eperts in the eld wh were s generuswith their tie, knwledge and epertise.Fr additinal inratin n Pew and the Center n the States, please visit
www.pewcenteronthestates.org
. This reprt is intended r educatinal and inratinal purpses. Reerences t specic plicyakers r cpanies have been included slely t advance these purpses and d nt cnstitute anendrseent, spnsrship r recendatin by The Pew Charitable Trusts.©2010 The Pew Charitable Trusts. All Rights Reserved.901 E Street NW, 10th Flr 2005 market Street, Suite 1700Washingtn, DC 20004 Philadelphia, PA 19103
 Team Leaders
Nancy Y. AugustineDavid DraineStephen FehrKil Huh
 Team Members
Ann ClkeLri Grangematt mcKillpmrgan Shaw
Design and Publications Team
Evan PtlerCarla Urina
 
February 2010Dear Reader: A $1 trillion gap. That is what exists between the $3.35 trillion in pension, health care and otherretirement benets states have promised their current and retired workers as o scal year 2008 andthe $2.35 trillion they have on hand to pay or them, according to a new report by the Pew Centeron the States.In act, this gure likely underestimates the bill coming due or states’ public sector retirementbenet obligations: Because most states assess their retirement plans on June 30, our calculationdoes not ully refect severe investment declines in pension unds in the second hal o 2008 beorethe modest recovery in 2009. While recent investment losses can account or a portion o the growing unding gap, manystates ell behind on their payments to cover the cost o promised benets even beore the GreatRecession. Our analysis ound that many states shortchanged their pension plans in both goodtimes and bad, and only a handul have set aside any meaningul unding or retiree health care andother non-pension benets.In the midst o a severe budget crisis—with record-setting revenue declines, high unemployment,rising health care costs and ragile housing markets—state policy makers may be tempted toignore this challenge. But they would do so at their peril. In many states, the bill or public sectorretirement benets already threatens strained budgets. It will continue to rise signicantly i statesdo not bring down costs or set aside enough money to pay or them.The good news? While the economic downturn has exposed serious vulnerabilities in states’retirement systems, it also appears to be spurring policy makers across the country to considerreorms. This report illustrates that a growing number o states are taking action to change howretirement benets are set, how they are unded and how costs are managed.Retirement benets are an important part o how states can attract and retain a high-caliberworkorce or the twenty-rst century—and the bill coming due or these promises is anincreasingly crucial issue aecting states’ scal health and economic competitiveness. Later thisyear, Pew will release a study o cities’ public sector retirement benet obligations and their impacton states. And in the coming months, we will oer additional research on states’ budgets andeconomies—rom the main actors driving scal stress to policy options that could help statesweather the storm.Sincerely,Susan UrahnManaging Director, Pew Center on the States

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