Shortchanged payments to state and local pension plans over a period of time have resulted in $1.3 trillion of unfunded liabilities, according to an article by Bloomberg News. Among the states cited in the widening gap between resources and obligations are Kansas, Michigan, New Jersey, New York, Kentucky, Illinois and Maryland.
"When you put off payments you should be making, you're just shoving it forward and making it difficult for future budgets," said Tom Aaron, who tracks public pensions as an assistant vice president of Moody's Investors Service in Chicago. Skipping payments only raises the cost down the road, especially on retirement pledges that were made decades ago.
States and localities are straining to catch up with a moving target. Their required contributions more than tripled to $93.7 billion in 2013 from $27.7 billion in 2001, according to National Association of State Retirement Administrators data encompassing 80% of U.S. public pension assets. The plans were 79% financed on average as of 2012, down from about 100% in 2001.
Adequate funding is the key to writing retirement checks and when you don't have a budget stream going to pensions anymore, it's hard to get it back, according to Keith Brainard, who directs research in Georgetown,Texas, for the retirement administrators group. Data compiled by Bloomberg notes that Illinois and Kentucky, which have shortchanged required contributions, have the worst-funded state pensions.
New Jersey Gov. Chris Christie in February proposed a budget for the year beginning in July that contributes a record $1.3 billion to the retirement system, but that's less than the $3.1 billion the state was scheduled to pay as Christie seeks to cut costs — and legislative analysts forecast a deficit of as much as $7.35 billion.
Kansas Gov. Sam Brownback has proposed shortchanging contributions by $58 million to fill a $280 million budget hole created by tax cuts he championed. He persuaded lawmakers to approve a $1 billion bond sale to make up for part of the underfunding.
New York has a system for rolling payments into future years, and in Michigan the governor has pushed to postpone contributions for teacher pensions.
Officials in Maryland, with top credit grades from Standard & Poor's and Moody's, canceled part of promised payments designed to help the state catch up, partly because rising stocks boosted returns. That state had about two-thirds of assets to cover projected liabilities as of June 30.
Bailey Childers, executive director of the Washington-based National Public Pension Coalition, which advocates for public pensions, summed it up this way: "Public employees stand to lose their pensions and retirement security if they're not funded."