U.S. Public Pension Shortfalls Exceed $1 Trillion

U.S. state and local government pensions have at least $1.1 trillion less than they need for promised retirement benefits, even after stock-market gains and increased contributions boosted the funds, a study found.

The pensions had about 72 percent of the money needed to meet retirement obligations in 2013, unchanged from the year before, the Center for Retirement Research at Boston College said in the study released today. Governments paid more into the funds, 83 percent of their required annual contributions, up from 81 percent a year before.

The figures illustrate the strain facing states and cities that have failed to set aside enough money to cover retirement costs. Those gaps are putting pressure on governments around the country, including Illinois and California, to pare benefits or force governments and employees to pay more into the funds.

The study, based on 150 public pension plans in the 2013 fiscal year, found the funds have been slow to recognize stock market gains because of accounting techniques that smooth increases and losses across several years.

The outlook for pensions is expected to improve in 2014, according to the researchers, who estimated that plans would be about 80 percent funded by 2017 if stocks extend their gains.

The study assumes annual investment gains of 7.7 percent to calculate the cost, in today’s dollars, of benefits that will be paid out in the coming decades. If that is reduced to 4 percent, the shortfall grows to as much as $3.8 trillion.

To contact the reporter on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Justin Blum, Mark Tannenbaum

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