Deficit in State Pension Funds Grows by 26 Percent

The deficits in U.S. states’ employee retirement funds widened by 26 percent in fiscal 2009, according to a new study released by the Pew Center on the States. The study found the main reason for the growth in deficits was that governments were hit hard by investment losses, which meant they were unable to pay enough into their pension funds.

Deficit Grows to $1.26 Trillion

According to the Pew Center, the deficit in pension funds grew to $1.26 trillion by the end of the 2009 budget year (which ends in June for all but four states) from $1 trillion a year earlier. The deficit is the difference between the retirement and health-care benefits that states have promised their employees and the assets they actually have set aside to fund them.

According to the study, the state budgets were already in bad shape prior to the recession. But once the economy hit its worst point, states dug themselves into a bigger hole, making them not only unable to make up for previous deficits but putting them in a position to contribute even less into the funds.

Bigger Deficits Mean Less Money for Retirees

Because states’ deficits increased significantly, retirees are less likely to have the amount in their funds promised to them at retirement. In 2009, state systems had 78 percent of what they needed to pay for promised pensions. This is down from 84 percent a year earlier, according to the Pew Center.

While some say the pension funding levels are stabilizing, experts assume that overall pension funds will remain below promised levels for some time because states are still having have major budget funding issues. In fact, the Pew Center estimated in January that pension funds could eventually see a deficit of $2.5 trillion.

States with the biggest deficits in 2009 were Illinois, West Virginia and New Hampshire, which had just 51 percent, 56 percent and 58 percent of what they needed to pay for promised benefits. New York and Wisconsin fell on the other end of the spectrum, actually having enough funding in 2009 to pay their retirees in full.