Overall, state public-sector pension programs continue claw out of the unfunded liabilities that have buried them since the financial collapse, as the total pension debt was over $1 trillion at the close of the fiscal year 2012.

New research from The Pew Charitable Trusts finds that public-sector pensions saw retiree funding shortfalls increase by $157 billion since 2010. At the time, the gap for public employees’ retirement benefits grew to about $1.38 trillion. Also, there was a reported $757 billion gap in long-term liabilities and $627 billion for retiree health care and other non-pension benefits.

The independent research organization, based in Philadelphia and Washington, D.C., finds that state-run retirement systems had a $914 billion shortfall. This number increases to over $1 trillion when total pension debt factors into local government promises. 

Because many states implement a five-year smoothing method when determining pension health and benefit payments, Pew senior researcher David Draine says that the effects of the 2009 stock market crash is still seen to this day as many state retirement officials try to reach promised 7-8% investment returns on an annual basis.

“Rather than acknowledge that all at once, we will take a portion of that and reflect that in our figures,” Draine says. “We’re still seeing ongoing increases in unfunded liabilities of 2008 and 2009.”

Pew explains in its March update that recent investment returns did little to stave off the funding gap charged to public plan sponsors and public workers. The funding gap – a medley of investment return shortfalls, missed contributions and unfunded benefits – has increased from $452 billion in 2008 to about $757 billion in 2012.

“States have not been consistent in either good times or bad in paying their pension bills,” Draine explains. “There’s about $20 billion in skipped payments in 2012, and it’s important to not only fund benefits that are being promised, but also to pay down any pension debt you’ve accumulated as a state or city or town.”

“Only 14 states have consistently made at least 95% of the full actuarially required contributions for their pension plans from 2010 through 2012; the remaining 36 states fell short in at least one year,” according to the research.

In total, Pew finds that there was approximately $3.2 trillion in total for state pension liabilities. Also, overall funding ratios dipped from 75% in 2010 to 72% in 2012.

However, the outlook for 2013 is brighter, as many states complete their efforts to smooth over losses on their balance sheets.

“2013 should be the last year you see another hit from the 2009 losses,” says Draine. “Even though returns were great in 2013 on an actuarial basis, I think we anticipate either holding steady or declining a bit further.”

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