Monday, March 3, 2008

Report: Many States Are Lax in Funding Their Pension Plans

Many states are failing to set aside enough money for the pensions they have promised public workers and are likely to face fiscal distress. The situation is even worse in states that have also promised to help cover the cost of retiree health care, says the Government Accountability Office.

State and local governments are not covered by a federal law that dictates how employers must handle retirement plans. Instead, governments typically hire an actuary, who sets up a detailed funding program. Then, each year, the actuary
calculates a required contribution.

As long as the actuary’s assumptions are realistic, and the government makes the required annual contributions, the plan will succeed — all the benefits will be paid for by the generation of taxpayers who received those workers’ services.

The report did not identify which states were flouting the instructions of their actuaries, but public records suggest that one of the worst offenders has been New Jersey, where the state pension fund has been shortchanged since the early 1990s. Records shows that other states that have been failing to contribute what their actuaries said was required include Illinois, Pennsylvania and Kentucky.

The G.A.O. reported that no state pension funds are about to run out of cash. But it warned of a looming problem in some places, where states have also promised to provide health care benefits for retirees.

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