Illinois is tops in unfunded state and local pension liabilities per capita
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Illinois led the nation with nearly $16,000 per capita in unfunded state and local pension liabilities at the end of fiscal year 2024, while Connecticut ranked second with about $10,000 per capita in pension debt, a Reason Foundation study shows.
Six other states – Alaska, Hawaii, New Jersey, Mississippi, New Mexico and Kentucky – each had public pension debt topping $8,000 per person according to the
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State and local pension plans had a total of $1.48 trillion in unfunded liabilities at the end of FY 2024, down 9% from $1.62 trillion at the end of FY 2023, the report said. The decline in unfunded liabilities, however, was driven largely by FY 2024’s higher-than-expected investment returns, according to the report.
The median funded ratio of all U.S. public pension plans evaluated in the report was 79% at the end of FY 2024, meaning governments had just 79 cents for every dollar of pension benefits promised.
“We’re incredibly nervous,” said Ryan Frost, a Reason Foundation policy analyst and managing director of Reason’s Pension Integrity Project, who was one of the report’s authors.
While state and local pension plans reduced their unfunded liabilities by 9% in FY 2024, that’s no guarantee there won’t be an increase of 9% or more in FY 2025, Frost said.
“Most plans are taking a lot more risk in their investment portfolio than they used to, and so there’s a lot more volatility than there ever was in pension plan returns,” he said.
In FY 2021 for example, big investment returns pushed the total state and local pension plan unfunded liability figure below $1 trillion for the first time since FY 2008, Frost said.
However, in FY 2022, “public pensions had a really bad return, and it added over $600 billion of unfunded liabilities in one year,” the policy analyst said. Indeed, Reason’s report shows that U.S. public pension plans had unfunded liabilities totaling $1.59 trillion in FY 2022, up from $934.9 billion in FY 2021.
Most states – almost 99% by his reckoning – “have been far too slow to lower their future assumption on earnings,” Frost said, adding that he understands states’ reluctance “because every time you drop that assumption down a little bit, it adds a ton of unfunded liabilities to the plan.”
A lot of plans have stopped around the 7% mark when it comes to reducing their assumed rates of return “and think that they can invest their way out of their unfunded liability problem by just taking on more risk,” Frost said.
That strategy, “seems like a very risky bet on the taxpayers’ dime,” he said.
Illinois’ public pension system – with a 52% FY 2024 funded ratio – ranks 50th in the nation in funded ratio, the report showed.
“Illinois is just pure mismanagement,” Frost said.
Efforts to obtain comment from the Illinois governor’s office were unsuccessful Friday.
By contrast, Tennessee’s public pension system, with an FY 2024 funded ratio of 104.2%, ranks first in the nation in funded ratio, the report showed.
Reason’s report examined 315 public pension plans. Of those, 205 are state-administered, while 110 are local. The plans collectively manage 90% of the total estimated assets within U.S public pensions, according to the report.
