THE CENTER SQUARE
(The Center Square) – California has a larger unfunded pension liability than any other state in the nation, a new report released this week.
The report, released by the American Legislative Exchange Council (ALEC), found that unfunded pension liabilities nationwide have climbed to $8.28 trillion, “or just under $25,000 for every man, woman and child in the United States.”
The report found that California has the greatest amount of unfunded pension liabilities of any state, totaling over $1.5 trillion.
That amount is a rough estimation of how much the average pensioner will receive for the projected duration of their lives in retirement, also factoring in the number of pensioners, active workers and beneficiaries. After subtracting the pension’s assets and expected return on investments, the unfunded actuarial liability is found. It doesn’t include other pension benefits such as state-paid health care.
According to Ballotpedia, there were 82 public pension systems in California in 2020. Of those, 10 were state-level programs and 72 were administered locally. As of 2020, more than 4.4 million Californians were members of the various pension systems, according to Ballotpedia.
ALEC’s report reviewed 290 state-administered pension plans across the nation and their assets and liabilities from fiscal years 2012 to 2020.
The California Public Employees’ Retirement System (CalPERS) and the California Teachers’ Retirement System (CalSTRS) are the two largest pension systems in the nation. The pension funds have a combined portfolio of more than $570 billion and have 2.7 million Californians as members, according to the state controller’s office.
CalPERS was 70.6% funded as of June 30, 2020 and had $163 billion in unfunded liabilities, while CalSTRS was 67% funded with $106 billion in unfunded liabilities as of November 2021, according to the Reason Foundation. In November, CalPERS announced changes that would require some public employees in California to contribute more of their pay to retirement.
There is no state in the nation that has fully funded its pension plans. Wisconsin has the highest funding ratio in the nation at 56%, while New Jersey has the lowest at under 18%.
Pension funding health is important not only for participants of the funds but taxpayers who contribute the lion’s share of the funding. A poorly-funded pension will require more tax dollars in annual contributions, crowding out other priorities.
ALEC’s report calls for “sound pension reform,” saying that “poor assumptions, over promising benefits, chasing returns, and political investment strategies plague public pensions across the country.”
California made efforts to reform its pension system through the California Public Employees’ Pension Reform Act of 2013. The act took effect on Jan. 1, 2013, and placed compensation limits on members.
One such limitation is placed on pension “spiking,” which entails a public employee adding more responsibility or working overtime in the last years of their employment to inflate how much they should be receiving in annual benefits from pension funds.
