The Government Accountability Office says states should have at least an 80% funding level. As of fiscal 2009, just 20 states were at 80% or above, according to Pew.
Pew also said states had saved in 2009 just 5% of the $635 billion needed to pay for retiree health care and other benefits. Just five states — Alaska, Arizona, North Dakota, Utah, and Washington — made the necessary contributions to fund their health-care liabilities, while 19 states set aside no funds to pay their bills coming due for retiree health care and other non-pension benefits.
“These states continue to fund these benefits on a pay-as-you-go basis, covering medical costs or premiums as they are incurred by current retirees,” Pew said in its report.
“For states offering modest benefits, this may cause little problem. But for those that have made significant promises, the future fiscal burden could be enormous if more savings are not set aside or costs are not better managed.” Read the Pew report here.
Meanwhile, the U.S. Census Bureau said Wednesday that state retirement-system assets fell $641 billion in 2009, mainly due to a steep drop in earnings on investments. Read the Census report here.
Clearly, the public pension system is underfunded and something must be done to fix the problem. Taxes must go up, benefits to government workers must be cut, or some mix of those solutions is in order.
And current and former government workers should prepare now for the possibility that their retirement benefits could change, especially since more than 20 systems have cut their benefits, experts say.
It’s definitely a good idea for state and local employees and, frankly, all workers to start setting some money aside for both planned and unplanned expenses in retirement, said Michael Wilson, chief executive of the International Foundation of Employee Benefit Plans.
Health care
Meanwhile, retiree health benefits have been eroding since the mid-1990s and that trend is likely to continue according to a 2010 report from the Employee Benefits Research Institute.
This trend “has been driven by the excessive cost of offering this benefit due to new accounting rules and the increasing cost associated with providing the benefit,” EBRI said in its report. “Fewer private-sector employers offer the benefits, both private- and public-sector employers have been increasing retiree premiums and cost sharing, and workers are finding it harder to qualify for a subsidized benefit.” Read that report on EBRI’s site.
This month Aon Hewit said that “most large employers are beginning to rethink their retiree health-care strategy as a result of federal health-care reform.” In late 2010, Aon Hewitt surveyed 344 companies, representing 2.2 million retirees nationwide, and found that 61% were either already evaluating or were expected to evaluate their long-term retiree medical strategy by the end of 2011, due to health-care reform. Read that report here.
Public-sector workers, especially new hires, should put “paying for retiree health-care expenses” on their to-do list.
