Skip to main content

You are here

Advertisement


Cato: Unfunded Liabilities Will Continue to Plague States

The fiscal pressure that public pension plan obligations exerts on state governments is not going away, a recently released report cautions. The Cato Institute expects that the cost of those plans will be a major driver of state budgets.

Cato’s “Fiscal Policy Report Card on America’s Governors 2014” assesses how the state governments have done since 2012 in handling their budgets and meeting fiscal challenges, and takes a look at the future as well. The report notes that many state retirement plans already have heavy unfunded liabilities, and that those plans will continue to pose challenges to state budgets.

Cato expects that gaps between funding of state retirement plans and those plans’ benefit obligations will exacerbate the cost of total wages and benefits for state and local government employees. The report says that most states have not adequately provided for covering those obligations.

The report does acknowledge that many states have made some efforts to address these shortfalls, especially by increasing the amount state and local government employees contribute to their retirement accounts and by cutting benefits. For instance, Cato gave Wisconsin Gov. Scott Walker (R) a B in handling state fiscal matters, and the reform of state retirement plans is one of the reasons for his fairly good grade. But Cato says that overall, state efforts to fully fill the gap are insufficient.