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The Trillion Dollar (and then some) Pension Gap
The Pew Report on state pensions, finding a $1 trillion unfunded liability nationally, has already received a great deal of attention, so here are just some brief highlights for Pennsylvania.
- The report, by its own admission, dramatically understates the true pension funding gap, since it doesn’t include losses in 2008. Indeed Pennsylvania’s two state pension plans, SERS and PSERS, ranked 1st and 3rd in losses (28.7% and 26.5%) in 2008 among the state plans surveyed.
- Fifteen states passed pension reforms in 2009, Pennsylvania was not among those.
- Retiree health care benefits are another looming issue – Pennsylvania’s unfunded liability (through FY 2008) was about $10 billion, or less than 1% of the costs are funded.
- If you haven’t read the Commonwealth Foundation’s pension materials, page 23 of the Pew report has a brief summary of the political decisions that led to Pennsylvania’s pension “spike”.
- Pennsylvania ranks dead last in paying its bills, contributing only 40.5% of the annual contributions needed to pay of the unfunded liability.
- PSERS and SERS recently lowered their expected annual investment returns to 8%, raking with 22 other states as the most common assumption. At 8.5% (the previous assumption) Pennsylvania led the way, along with 5 other states. This means that the future cost estimates assume we will earn 8% on our investment. Any earnings of less than 8% increases the amount taxpayers have to contribute to the fund.