State government pension liabilities
From Sunshine Review
State government pension liabilities are the unfunded liabilities that state governments take on when they provide pension and other post-employment benefits to state government employees without simultaneously accumulating the funds to pay for those eventual liabilities.
Defined-benefit pension plans were established originally to set aside funds to pay retirement benefits to employees. These benefits are financed through the contributions of employers and employees, and the investment income derived from those contributions.
Pension plans for state government employees operated initially on a pay-as-you-go basis. Over time, most states attempted to pre-pay the cost of pension benefits for employees. Every state government currently reporters on its pension plans in financial statements following guidelines established by the Government Accounting Standards Board.
Pre-funding and ratios
The "funding ratio" is the actuarial value of assets divided by actuarial accrued liabilities. Unfunded liabilities are the portion of accrued liabilities not offset by assets in the plan.
The funding ratio in the 1970s was 50%. In the 1990's, the ratio was 80%. In 2000, the ratio was slightly above 100%, meaning that there were at that time no unfunded pension liabilities.
Impact of 2001 recession
When the recession of 2001 took effect, the fall in the stock market brought significant losses in assets held by the state's pension funds. By 2006, the funding ratio of state pension plans had fallen to 81%. In dollar terms, this meant an accumulated nation-wide shortfall in state pension plans of $360 billion dollars.
