Sunday, June 30, 2013

Are there Problems at U.S. State Pension Plans?

Last week, Moody's Investors Service released a report stating that 10 U.S. states have public pension plan obligations that are greater than their annual revenue. The report said that Illinois’ pension cost was equal to 241% of its revenues followed by Connecticut 189%, Kentucky 140%; New Jersey 137%; Hawaii 132%, Louisiana 130%, Colorado 117% and Maryland 99%. Collectively all 50 states have about $0.43 for every $1.00 needed to meet these pension obligations, suggesting that there is a shortfall of at least $980 billion within the state pension plans in the U.S..

MY TAKE
While many states has pursued various cost cutting measures in recent years (such as increasing the retirement age, reducing benefits and increasing plan contributions by workers), the Moody’s study suggests that significant underfunding problems remain. It is likely that this problem will persist for many years to come, with some states being forced into a mix of restructuring, bankruptcy and/or default.

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