Collectively, the researchers say, the funding gap equals more than $932.5 billion, or about $600 billion more than the funds themselves claim in financial statements. The researchers attribute only $116 billion of the discrepancy to turmoil in the stock market. Much of the difference, they say, is a result of funds lowballing the cost of paying future benefits, under the assumption that stock values will rise "much higher" by the time they have to pay out benefits.
"The general picture is not a good one," say researchers Josh Barro and Stuart Buck. Barro is a fellow at the Manhattan Institute. Buck is a fellow at the University of Arkansas' Department of Education Reform.
On average, the pair find, the funds — many of them general state-employee pension funds — say they're 78% funded. But using a more conservative estimate of projected returns, Barrow and Buck say they're only about 54% funded. Among the worst, they say: California's State Teachers' Retirement System (CalSTRS), with a $97.5 billion shortfall. They say only five are 75% funded or better: teacher plans in the District of Columbia, New York state and Washington state; and state-employee retirement systems (which include teachers) in North Carolina and Tennessee.
CalSTRS spokesman Ricardo Duran said Tuesday that the study uses "the same unrealistic accounting tricks" that other analysts have used to estimate high taxpayer costs for teacher pensions. He notes that the state's "well-diversified investment portfolio" has averaged 8.6% annual returns for the past 30 years, even with a 25% loss from the 2008 global market crash.
Barro and Buck say states should consider 401(k)-type retirement plans, among others, especially for new and young employees.
Last February, the Pew Center on the States estimated a $1 trillion gap between promised state pension, health care and other retirement benefits for all state employees and what states "have on hand to pay for them." Actually, Pew said, the $1 trillion figure "likely underestimates the bill coming due" because it doesn't fully reflect "severe investment declines" in 2008.
