Washington was one of eight states in 2019 whose pension benefits were at least 90% funded. The state also was an early adopter of pension stress testing—analyses of the plans’ fiscal health under different investment scenarios—which allows policymakers to monitor the impact of investment volatility on plan balance sheets and government budgets.
The combination of a decade of increasing pension contributions and the strong market rally of 2021 has had a stabilizing effect on state pension plans. As a result, The Pew Charitable Trusts estimates that pension plan assets have risen by more than half a trillion dollars since 2011, leading to a 50-state funded ratio—the share
of pension liabilities backed by plan assets—of over 80% and total state pension debt of less than $800 billion at the end of fiscal year 2021. This represents the highest funded ratio since before the Great Recession and the greatest progress in closing the state pension plan funding gap—the difference between plan liabilities and assets—this century.
However, not all state pension funds are approaching long-term fiscal sustainability, defined as government revenues matching expenditures without a corresponding increase in public debt. Although pension funds are currently benefiting from surging investment returns—which plans count on to cover 60% of the benefits they pay out—Pew estimates that long-term returns will decrease to about 6% annually, which is less than what most state pension plans are currently budgeting for.
To help policymakers navigate the uncertainty inherent in pension management and evaluate their plans’ resiliency, Pew has developed a 50-state matrix of fiscal sustainability metrics. The matrix highlights the practices of successful state pension systems, presenting critical data in a single table to facilitate comparative analyses and state plan assessments. Specifically, these data points illuminate historical outcomes from policy choices, measures of cash flow that determine long-term solvency, and indicators of risk and uncertainty.