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LOCAL ECONOMIC SNAPSHOT | PUBLIC PENSIONS

The growing funding gap
By PAMELA YIP
Personal Finance Writer pyip@dallasnews.com

States continue to lose ground in their efforts to cover the long-term costs of their employees’ pensions and retiree health benefits. In fiscal year 2010, the gap between states’ assets and their obligations for public sector retirement benefits was $1.38 billion, up almost 9 percent from fiscal year 2009, according to the Pew Center on the States, which identifies solutions to critical issues facing states.

Texas
Texas was a strong performer at managing its long-term liabilities for public pensions, despite failing to pay its full annual pension contribution four times from 2005 to 2010. The state has fallen far short on funding for its retiree health care obligations, according to Pew.
45% to 59%

Pensions, percentage funded
60% to 69% 70% to 79% 80% to 89% 90% or more

Wisconsin
WA MT OR ID WY NV CA UT CO NE IA IN KS MO KY TN AR MS LA AK AL GA OH WV VA NC SC SD ND MN MI PA NY

100%

Illinois

45%

ME VT NH

Pensions (2010)
$163.4 billion

MA RI CT NJ DE MD

Assets $135.6 billion

Gap $27.8 billion

AZ

NM

OK

Retiree health care (2010)
$56 billion

Texas

FL

83%
HI

Assets $560 million

Gap $55.4 billion

Retiree health benefits, percentage funded
0% 0.1% to 49% 50% or more
ME MN ID WY NV CA UT CO NE IA IL KS MO IN KY TN AR MS LA AL GA OH WV VA NC SC SD WI MI PA NY VT NH WA MT OR ND

In 2010, Texas paid 82 percent of its required pension contributions and 26 percent of its required retiree health care contribution.

Pensions
Recommended contribution $3.4 billion $2.8 billion Paid Arizona

MA RI CT NJ DE MD

NM

OK

69%
Retiree health care
Recommended contribution $4.5 billion $1.2 billion Paid Alaska

Texas

FL

50%

1.5%
HI

NOTES: Based on fiscal year 2010 data; 2010 data for all states except for Ohio, South Dakota, Virginia and Wisconsin, which are for 2009; Nebraska does not calculate a liability for retiree health benefits

The bottom line
“States continue to feel the impact of the Great Recession and have lost more ground in their efforts to cover the long-term costs of their employees’ pensions and retiree health care. While the economy and state revenues are improving, states are still struggling to manage the bill coming due.” “You begin with an assumption of what you’re going to return. Some people are [using] 8.5 percent, 9 percent, in a world where the 10-year bond is yielding 1.5 percent. No one is doing that in any market. It’s really an absurd proposition on its face.” “Texas lawmakers approved pension benefit cuts in 2009 and 2011, including raising the retirement age from 60 to 65. That changed the formula for calculating benefits and increased employee contributions. Lawmakers also increased employee contributions to their retiree health care.” Pamela Yip, personal finance writer, The Dallas Morning News

David Draine, senior researcher, Pew Center on the States

Shad Rowe, former chairman of the Texas Pension Review Board