Bob McCarty Writes

State employee pension systems are facing severe shortfalls, and these growing liabilities threaten to drive many states deeper into the red, according to a new 50-state study released today by the American Legislative Exchange Council, the nation’s largest individual membership association of state legislators.

In “State Pension Funds Fall Off a Cliff,” Drs. Barry Poulson of the University of Colorado and Dr. Arthur P. Hall of the University of Kansas, reveal that, as of 2006, states have accumulated nearly $360 billion in unfunded pension obligations. In addition, the authors warn the problem is even worse, as investment losses from the recent economic downturn have not been fully realized in the official government statistics.

A sampling of data from 2008 reveals much trouble ahead if states do not undertake fundamental reform of pension systems. Illinois comes in with the worst funded pension plan in the nation at 46.1 percent. Private defined-benefit pension plans are deemed to be “critical” if the funded portion of the plan is less than 65 percent.

“The underfunding of public pension plans has become the 900-pound gorilla in the area of state budgets,” said State Senator Jim Buck of Indiana, chair of ALEC’s Tax and Fiscal Policy Task Force. “If legislators do not properly address the crisis in public pensions, it will make current budget problems in the states look trivial.”

The authors of this study conclude that the first step towards real pension reform is to increase transparency of unfunded pension liabilities by meeting the guidelines established by the Governmental Accounting Standards Board.

Funny, isn’t it, how transparency always seems to be the cure for whatever ails us.