Detailed Findings

In recent years, investment returns that fell short of state assumptions have significantly contributed to the national aggregate pension debt. In 2016, the typical state pension plan yielded a 1.0% return on investment, far below the median investment return assumption of 7.5% for public pension funds and the worst performance since the end of the Great Recession in 2009. The investment shortfall was largely due to increased exposure to risk and market volatility and accounted for an aggregate increase of $146 billion to the total state funding gap.

One factor that can contribute to increased pension obligations is demographic change. As the U.S. population ages and more public employees enter retirement, there are fewer workers per retiree to support pension plan payments. States that do not accurately account for the rising old-age dependency ratio in their benefits schemes may face increased pension debt and risk having to raise employee contribution rates or reduce other government services in order to fill the shortfall.

Methodology

To rank the severity of each state’s pension crisis, 24/7 Wall St. reviewed the average pension funding ratio — the market value of a pension fund as a share of the total benefits owed to current or retired public employees — for all 50 states as of 2016 with data from nongovernmental organization The Pew Charitable Trusts. Data on the total pension shortfall also came from Pew and is for 2016. Data on the average annual benefits payout per public retiree came from the research nonprofit National Institute on Retirement Security and are for 2016. Data on the share of the workforce employed in state and local government is from the Bureau of Labor Statistics and are for 2017.