Only one state — Wisconsin — can boast a pension system with a funding level over 50 percent, and Colorado continues to slip lower in national funding level rankings, according to a new report.
“Unaccountable and Unaffordable,” from the conservative American Legislative Exchange Council, warns of dire national consequences if states don’t move immediately to address pension finding woes:
Absent significant reforms, unfunded liabilities of state-administered pension plans will continue to grow and threaten the financial security of state retirees and taxpayers alike.The fiscal calamity could be far deeper and prolonged than the Great Recession.
Colorado PERA ranks 39th among the 50 state plans, with a funding ratio of just 28.6 percent in ALEC’s 2017 report, down almost two percentage points from the 2016 report. The worst-funded plan is Connecticut’s, at 19.7 percent. Wisconsin’s sits at 61.5 percent.
An article about the report in Chief Investment Officer magazine describes ALEC’s methodology for analyzing funding ratios:
(ALEC) analyzed the official annual financial documents of more than 280 state-administered pension plans using what it deems “more realistic investment return assumptions” in order to gain a clearer picture of the pension problem.
The unfunded liabilities of each pension plan were revalued using a discount rate equal to a risk-free rate of return represented by debt instruments issued by the US government. It said that 2017’s study used a risk-free rate of 2.142%, derived from an average of the 10- and 20-year US Treasury bond yields from April 2016 to March 2017.
This methodology allowed ALEC to calculate per capita unfunded liabilities by state. Here, too, Colorado PERA looks bad compared to many of its peers. The Centennial State ranks 35th of 50, with each man, woman, and child in the state on the hook for $21,369 in unfunded pension liabilities — significantly worse than the national average:
The national average funding ratio is a mere 33.7%, amounting to $18,676 of unfunded liabilities for every resident of the United States. Much of this problem is due to state governments failing to make their annually required contributions.
We will be watching with great interest to see how concerted an effort our state legislature can make in this new year to address these serious economic threats to our state’s future.