One way to track the health and resiliency of a public pension plan over time is by assessing the plan’s funded status. The funded status, also called the funded ratio, represents the plan’s assets as a proportion of its actuarial accrued liability. In other words, the funded status is measured by comparing the current assets’ projected value to the total amount the pension plan will owe retirees.
For this analysis, we determined each state’s funded status by calculating the total reported market value of assets and actuarially accrued liabilities. This allows us to estimate the weighted average based on each pension plan’s liabilities.
Reason Foundation’s Pension Integrity Project finds the average state-level funded status dropped from 97.7 percent in 2001 to roughly 73.6 percent in 2019. This decline of 24.1 percentage points is cause for concern.
But, it’s worth noting that not all changes in public pension plan funding status are equal. For example, Washington state’s pension plans fell from 165 percent to 110 percent funded between 2001 and 2019, while Kentucky saw its total funded status drop from 95 percent to 46 percent over the same period. Even though both states saw their funded ratios fall significantly, Washington still has fully-funded pension systems. In contrast, none of Kentucky’s three major public pension plans is even 60 percent funded.
Our new interactive tool allows you to see how every state’s public pension plan’s funded ratios have changed since 2001.
The features of the tool can also be adjusted to show important information such as how funded ratios faired during the Great Recession of 2008, the states that have the worst-funded pension plans, and the average funded status decline or growth each year.
We recommend viewing this interactive chart on a desktop for the best user experience. If you are having trouble viewing the chart and interactive options on your device, please find the full dashboard here.
As the National Association of State Retirement Administrators (NASRA) notes, many factors affect a public pension plan’s funded status as every pension plan has a unique set of actuarial assumptions, methods, and experiences.
Additionally, by discounting pension liabilities at high-interest rates, many state and local governments understate their actuarial accrued liabilities and overstate their funded status. This means that some states may be in worse shape than their data shows here. Even so, examining the funded status of public pension plans can be a simple and transparent way to track the financial health of the plans over time.
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Reason Foundation’s Pension Integrity Project has helped policymakers in states like Arizona, Colorado, Michigan, and Montana implement substantive pension reforms. Our monthly newsletter highlights the latest actuarial analysis and policy insights from our team.