Which States Have Been the Best at Managing Pension Funding in the Past Decade?

The (Wall Street Journal recently reported ) on pension funding under the old
Governmental Accounting Standards Board (GASB) criteria compared with the new GASB standards.  Overall, according to the Center for Retirement Research at Boston College (BC), the percent of liabilities funded under the new standard are about 20% lower.  Given the long-term problem of funding pensions, this article answers the question: which states have improved their pension funding status over the past decade, and which states have shifted the responsibility further onto future taxpayers.

The data comprised the years of 2001-2011, as compiled and estimated by the Center for Retirement Research at Boston College.  The table that follows represents the directional change in the percentage of liabilities funded by promising entity.  A green check indicates the entity is moving in the direction of funding a greater percentage of anticipated liabilities.  A yellow exclamation point indicates a marginal movement downward in funding of liabilities, and a red “x” indicating a marked drop in funding of expected liabilities.  Overall, from 2001 to 2011, of the 125 plans reviewed, 10 showed improvement (green check mark), 7 had downward movement in liability funding (yellow exclamation point), and 108 (red “x”) showed marked drops in their commitment to funding liabilities.  These aggregate numbers don’t answer the question at hand: which states – Republican, Democratic, or Toss-up – let their liabilities slide onto future generations the most?

The answer lies partly in statistics.  Although not apparent in looking at the dot plot above, in comparing the correlation of Republican and Democratic states with the change in funding over the 10 year period, there’s not much difference, with the fact that a state leans Democratic indicating a slightly higher probability of seeing a higher decrease in funding (-24.2% versus 23.2% for Republican leaning states).  The range of effect of being a Republican or Democratic leaning state, though, overlap almost identically, indicating the two really are not  much different.  The interesting thing is that “Toss-up” states did the best, with an effect of only -15.6% (again, versus -24.2% for Democrats and -23.2% for Republicans).  Maybe the fact that state politics are competitive pushes more toss-up states to manage their money better?

Finally, look at the chart. As a result of the tech bubble, many pension funds were fully funded in 2000. Today, only four out of 126 have a funding ratio equal or greater than 100! This will be a big problem sometime in the future.