The State Pension Funding Gap Update

The Pew Charitable Trusts
Publication Date: 
April 12, 2018

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.