Although taxpayer contributions to state pension plans have nearly doubled as a share of state revenue over the past decade, the plans still face a more than $1 trillion shortfall. If these benefits aren’t sustainably funded, the cost of paying for them could hinder states’ ability to fund core government services such as schools, public safety, and infrastructure.
Policymakers need better information—including successful models—to help develop financially sound retirement systems that protect taxpayers, maintain the government’s ability to deliver important public services, and put state and local workers on the path to a secure retirement.
But there’s no one-size-fits-all solution. Every city and state has a unique set of policy preferences and budgetary challenges, and will choose its own approach. Pew provides the nonpartisan, evidence-based data and analysis that policymakers need to ensure that public sector retirement systems are financially sound for current and future workers, retirees, and taxpayers.
Since The Pew Charitable Trusts first evaluated the fiscal health of states’ public sector pension systems in 2007, these retirement plans have varied widely, both across states and year over year, in their ability to cover the costs of promised benefits with the assets they had on hand. But in 2020, pension systems, collectively, met a crucial benchmark for minimum plan funding for the first time since 2001. As a result, states are now positioned to sustainably fund their pension promises for the long run—if they make smart policy choices to seize this opportunity.
The combined effect of a decade of increasing pension contributions and the strong market rally of 2021 has had a stabilizing effect on state pension plans. Taken together, these factors contributed over half a trillion dollars to current plan assets.
Vermont lawmakers have taken significant steps this year to boost the independence of the commission that manages the state’s public pension investments and strengthen its governance.
The Pew Charitable Trusts has examined funding data for 100 pension plans in 33 cities from 2015 to 2017. The analysis found a $145 billion shortfall in 2017 between assets on hand and the liabilities for promised benefits, representing an aggregate funded ratio of 68%, only slightly below the overall state pension plan funded ratio of 69%.
The funding gap between state pension system assets and benefits promised to workers reached $1.4 trillion in 2016. Underfunded public pension systems have become a significant fiscal challenge facing states and municipalities. Although some plans for public workers are well-funded, others failed to set aside enough money to fund the pension promises made to public employees and took on risks that they weren’t able to manage.
