Millions of workers are not saving enough for retirement — and their states aren’t setting much of an example.
Many states are woefully underfunding their pension plans, according to an analysis by Truth in Accounting, an organization that seeks to bring greater transparency to government financial information.
Its latest annual analysis of states’ financial reports, which reflect data from fiscal year 2020, shows New Jersey to be in the worst shape, with its pension plans funded at a paltry 34%.
In other words, the Garden State has 34 cents set aside for every dollar it has promised in pension benefits. That compares with a nationwide average of 64 cents per dollar in pension benefits promised to employees covered by state retirement systems, such as teachers and first responders.
Truth in Accounting cites the COVID-19 pandemic as a significant factor contributing to New Jersey’s pension plight:
“The beginning of the pandemic and subsequent downturn in the market hurt New Jersey’s pension plans. The state’s major pension plans expected a 7.0 percent return on investment when in reality they received 1.4 percent.”
But the Garden State is not alone in this roll call of shame.
Following are the states that have funded less than 60% of their pension plans.
- New Jersey: 34%
- Illinois: 37%
- Connecticut: 43%
- Indiana: 44%
- Kentucky: 46%
- North Dakota: 51%
- South Carolina: 51%
- Hawaii: 53%
- Rhode Island: 53%
- New Mexico: 54%
- Massachusetts: 56%
- Vermont: 56%
- Pennsylvania: 58%
- Mississippi: 59%
- New Hampshire: 59%
Why do so many states have such poorly funded pensions? According to Truth in Accounting, they are spending the money elsewhere:
“One of the ways states make their budgets look balanced is by shortchanging public pension and [other post-employment benefits] (OPEB) funds. This practice has resulted in a $926.3 billion shortfall in pension funds … Unfortunately, some elected officials have used portions of the money that is owed to pension and OPEB funds to keep taxes low and pay for politically popular programs. This is similar to charging earned benefits to a credit card without having the money to pay off the debt.”
The news isn’t bad everywhere. In fact, many states have funded their pension plans robustly.
Wisconsin tops the list, with its plans funded at 103%. South Dakota (100%), Nebraska (93%), Tennessee (92%) and Utah (91%) also are doing well.
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