Financial Planning | Legislative / Regulatory | Technology & Social Media

Pension tension: Can states pay what they’ve promised?

Pickpocket The budgetary woes of state governments are well documented, but now they have another headache with which to deal.

You might have heard about it. This particular headache comes to us courtesy of the Pew Center on the States, which found a $1 trillion gap between what states had promised their employees in retirement benefits and what those states are actually able to pay.

“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 of the 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.”

According to the report, all but three of the states are underfunded, with two of them — Illinois and Kansas — able to pay less than 60 percent of their promised benefits.

And Maryland? It's able to fund 78.4 percent of its pension liability. It's one of 19 states cited in the study with pension plans that merit "serious concerns."

National Public Radio's Jim Zarroli says states might be able to ease the pain by taking some fairly simple steps, like increasing their retirement ages by a year or so. That could prove unpopular, though, and "will require some tough choices by state officials," Zarroli reports. "That's something many of them have shied away from."

Of course, states aren't the only ones troubled by this news. State employees are left wondering whether they'll have the money they thought they'd have in retirement. Maybe they should read "What You Should Know About Social Security" from Kiplinger. (It's subtitled, "Five ways to make sure you get the biggest possible check.")

Something tells me CPAs might be able to lend a hand, too.


Bill Sheridan