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Laxman Pai, Opalesque Asia: Despite revenue growth and strong investment returns, the public pension funding gap for all 50 states still exceeded $1tn in 2017, according to brief by The Pew Charitable Trusts.
The US state pension system is ill-prepared for the next downturn in financial markets even after a decade-long record-breaking market for US equities, pointed out Pew Research Centre, a Washington think-tank.
The national pension funding deficit was $1.28tn in 2017, the most recent year with complete data. That is down from $1.35tn in 2016, due to investment returns of 12% for the median plan.
According to Pew, over the same period, employer contributions fell $28bn short by actuarial funding standards.
What's more, the strong investment performance in 2017 was due to high allocations of assets to stocks and alternative investments such as private equity, hedge funds, and real estate.
Although these vehicles can produce high returns, they also expose plans to increased risk and volatility. Based on investment returns posted since 2017, Pew estimates a deficit of approximately $1.5tn as of December 2018.
States reported a total liability of $4.1tn in pension obligations to workers and retirees in 2017, and $2.9tn in assets set aside to pay for those benefits, creating the funding gap of $1.28 tn. This was a decrease from the previous year's gap of $1.35tn and only the second reported decrease since the recession.
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