<div id="subtitle">Pension gap problem might be worse than previously reported</div><div><p>Social Security isn't the only retirement system in trouble.</p><p>A new report from the Pew Center on the States finds a $1 trillion gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees' retirement benefits and the $3.35 trillion price tag of those promises. </p><p>The shortfall, which will have to be paid over the next 30 years by state and local governments, amounts to more than $8,800 for every household in the United States. </p><p>The figures detailed in Pew's report include pension, health care and other non-pension benefits promised to both current and future retirees in states' and participating localities' public sector retirement systems. </p><p>Pew says its numbers may well underestimate the bill coming due because the most recent available data do not account for the second half of 2008, when states' pension fund investments were particularly affected by the financial crisis. Additionally, most states' accounting methods spread the investment declines over a period of time-meaning states will be dealing with their losses for several years. </p><p>"While the economic crisis and drop in investments helped create it, the trillion dollar gap is primarily the result of states' inability to save for the future and manage the costs of their public sector retirement benefits," said Susan Urahn, managing director, Pew Center on the States. "The growing bill coming due to states could have significant consequences for taxpayers -- higher taxes, less money for public services and lower state bond ratings. States need to start exploring reforms." </p><p>To help policy makers and the public understand these challenges, Pew assessed all 50 states on how well they are managing their public sector retirement benefit obligations. </p><p>In fiscal 2008, states' pension plans had $2.8 trillion in long-term liabilities, with more than $2.3 trillion reserved to cover those costs. Overall, states' pension systems were 84 percent funded -- above the 80 percent funding level recommended by experts. </p><p>Still, the unfunded portion -- $452 billion -- is substantial, and states' performance is down slightly from an 85 percent combined funding level in fiscal year 2006. Pension liabilities have grown by $323 billion since 2006, outpacing asset growth by almost $87 billion. </p><p>Retiree health care and other non-pension benefits, such as life insurance, create another huge bill coming due: a $587 billion total liability to pay for current and future benefits, with only $32 billion -- or just over five percent of the cost -- funded as of fiscal year 2008. </p><p>Half of the states account for 95 percent of the liability. Because of a 2004 Governmental Accounting Standards Board rule, the full range of non-pension liabilities was officially reported in fiscal year 2008 for the first time across all 50 states. </p><p>In spite of the large and growing shortfall and the variation among states, momentum for policy reform is building nationwide. Fifteen states passed legislation to reform their state-run retirement systems in 2009 compared with 12 in 2008 and 11 in 2007. Reforms largely fell into five categories: (1) keeping up with funding requirements; (2) reducing benefits or increasing the retirement age; (3) sharing the risk with employees; (4) increasing employee contributions; and (5) improving governance and investment oversight. </p><p>With legal restrictions in most states on reducing pensions for current employees, the majority of changes in the past two years affect new employees. Ten states increased the contributions that current and future employees make to their own benefit systems, while ten states lowered benefits for new employees or set in place higher retirement ages or longer service requirements. </p><p>"A growing number of policy makers recognize that their states' fiscal health depends on how well they manage the bill coming due for public sector retirement benefits," said Urahn. "We are seeing more and more states explore policy reforms aimed at putting their systems on stronger fiscal footing." </p><p>The Pew report, "The Trillion Dollar Gap," identified significant variations in how states are managing their employee retiree benefits: </p><p>? Sixteen states were deemed solid performers, 15 were in need of improvement and 19 states were flagged for serious concerns. </p><p>? States like Florida, Idaho, New York, North Carolina and Wisconsin all entered the current recession with fully funded pensions, and were rated top performers by Pew. </p><p>? In 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four -- Florida, New York, Washington and Wisconsin -- could make that claim. </p><p>? In eight states -- Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia -- more than one-third of the total pension liability was unfunded. Two states -- Illinois and Kansas -- had less than 60 percent of the necessary assets on hand. </p><p>? Nine states were deemed solid performers, having enough assets to cover at least 7.1 percent -- the 50-state average -- of their non-pension liabilities. Only two states -- Alaska and Arizona -- had 50 percent or more of the assets needed. </p><p>? Forty states were classified as needing improvement, having set aside less than 7.1 percent of the funds required. Twenty of these have no assets on hand to cover their obligations. (Nebraska does not provide estimates of its retiree health care or other benefit obligations and did not receive a grade.) </p><p>? Only four states contributed their entire actuarially required contribution for non-pension benefits in 2008: Alaska, Arizona, Maine and North Dakota. </p><p>When it comes to private pensions, the news isn't much better as the federal agency that insures pension plans is running in the red. </p><p>Bad enough that the Social Security system seems to be circling the drain -- depending upon who you ask. People who depend on their monthly checks are not a happy lot if the complaints to ConsumerAffairs.com are any indication. </p><p>Ken from Superior, AZ, wants to know why there's been no outcry about recipients not getting a COLA this year. "For years," he writes, "the COLA has risen in double digits and senior citizens got only 2.4 percent raise. Now, the government is saying we won't get any. The cost of living will continue to rise, my rent will go up, utilities will go up, and medicines will go up, but my income won't." </p><p>Customer service -- or the lack of it -- is a major concern of Dena of Neosho, MO. She tells ConsumerAffairs.com, "Most of the time that I contact the SSA to try to find out what is going on with my disability back pay I get treated terrible, I was even hung up on the last time I tried to get information. The last time I called I placed the phone on speaker so that my aunt could hear and she was appalled at the way I was treated and talked to and then I was hung up on." </p><p>Many experts believe that the best course of action is for consumers to take retirement planning into their own hands. At the same time, though, they warn against going overboard and getting bogged down in minutia. </p><img src="http://admatch-syndication.mochila.com/images/ad.gif?aid=69688261&bid=informcom" /></div><div id="copyright"><div>

Copyright 2010  <a href="http://content.mochila.com/api/content/asset?assetID=2010-02-19:ConsumerAffairsInc/consumeraffairscom/Pew_Study_Finds_States_Face__1_T-60254/&uname=mochila_api&cert=d1ff44fd2ac969664ae05bf7687cc5d1&bpid=informcom">consumeraffairs.com</a></div></div>