Millions of workers are not saving enough for their retirement – and their states are not setting much of an example.
Many states are woefully underfunding their pension plans, according to an analysis by Truth in Accounting, an organization that seeks to bring greater transparency to government financial reporting.
Its latest annual analysis of state financial reports, which reflect fiscal year 2020 data, shows New Jersey is in the worst shape, with its pension plans funded at a meager 34%.
In other words, the Garden State set aside 34 cents for every dollar it promised in retirement benefits. That compares to a national average of 64 cents on the dollar of pension benefits promised to employees covered by state pension systems, such as teachers and first responders.
Truth in Accounting cites the COVID-19 pandemic as a significant contributing factor to New Jersey’s dire pension situation:
“The onset of the pandemic and subsequent market downturn has hurt New Jersey’s pension plans. Major state pension plans expected a return on investment of 7.0% when in reality they received 1.4%”.
But the Garden State is not alone in this roll call of shame.
Here are the states that have funded less than 60% of their pension plans.
- New Jersey: 34%
- Illinois: 37%
- Connecticut: 43%
- Indiana: 44%
- Kentucky: 46%
- North Dakota: 51%
- South Carolina: 51%
- Hawaii: 53%
- Rhode Island: 53%
- New Mexico: 54%
- Massachusetts: 56%
- Vermont: 56%
- Pennsylvania: 58%
- Mississippi: 59%
- New Hampshire: 59%
Why do so many states have such poorly funded pensions? According to Truth in Accounting, they spend the money elsewhere:
“One of the ways states make their budgets look balanced is by cutting public pensions and [other post-employment benefits] funds (OPEB). This practice resulted in a $926.3 billion shortfall in pension funds… Unfortunately, some elected officials used some of the money owed to pension funds and OPEB to keep taxes low level and pay for politically popular programs. It’s like charging earned benefits to a credit card without having the money to pay off the debt.
The news is not bad everywhere. In fact, many states have heavily funded their pension plans.
Wisconsin tops the list, with its plans funded at 103%. South Dakota (100%), Nebraska (93%), Tennessee (92%) and Utah (91%) are also doing well.
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