The State Pension Funding Gap Update
The gap between the promises states have made for public employees’ retirement benefits and the money they have set aside to pay these bills was at least $1.4 trillion in fiscal year 2016, according to Pew's comprehensive analysis on pension and retiree health care funding. That represents an increase of $295 billion, or 27.3 percent, from 2015.
A worsening fiscal picture in fiscal 2016 was driven largely by investment returns that fell short of expectations, with median overall returns of about 1 percent. On average, state pension plans had assumed a long-run investment return of much more that—7.5 percent—for fiscal 2016. This trend is expected to continue, leaving policymakers in many states to choose from often difficult options: paying more into state pension plans and potentially crowding out other spending in their budgets, or letting funding levels drop and pushing costs into the future.