Pension tension: very few states hold all the assets they should for future retirement and health care benefits.

• Author: Snell, Ron

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Some have fame thrust upon them, as has Kathleen Casey-Kirshling of New Jersey. She was born one second after midnight on Jan. 1, 1946, making her the very first member of the baby boomer generation. She has drawn broad media attention as the herald of coming boomer retirements.

Casey-Kirshling received the personal attention of Michael Astrue, commissioner of Social Security, when she filed for her Social Security benefits last October. Astrue used the occasion to praise Social Security's ease of access and contributions to Americans' well-being. But if you search Casey-Kirshling's name in Google, you'll discover that others regard her as the first droplet in a tsunami of Social Security obligations about to crash on the American economy.

Less recognized has been her career as a public school teacher, which presumably means she's also entitled to retirement benefits from that employment. Legislatures aren't responsible for Social Security, but if Casey-Kirshling is entitled to a teacher's pension, a legislature somewhere is involved in providing for that, and possibly for retirement health benefits as well. It is well-known that the federal government is inadequately prepared for the Social Security costs boomer retirements will bring. How well are states prepared to meet the retirement commitments they have made?

In some ways, very well. State and local governments are custodians of an enormous pool of assets safeguarded for future retirees--$3.24 trillion in cash and investments at the end of last October. In the fiscal year that ended on June 30, 2007, state and local governments and their employees contributed $91 billion to retirement funds, and the funds earned more than $265 billion on their investments. Funding levels generally have been improving in recent years, as investments have recovered from their post-2000 lows.

In other ways, states are not so well prepared. Very few states hold all the assets they should have on hand to prepare for future retirement benefits. All states invest in order to meet future obligations, but even allowing for future investment return, some state trust funds hold less than half what they should. And a substantial number are below the 80 percent figure that the public retirement community regards as adequate. The Pew Center on the States recently estimated that state pension systems (not including locally run systems) are about $360 billion short of the assets they should ideally hold for future retirees.

THE HEALTH CARE FACTOR

These generalizations hide enormous differences among the states. Some have stellar records. Delaware, Florida, North Carolina, South Dakota, Vermont and Wisconsin have for years maintained pension funding levels between 95 percent and 100 percent, even as high as 115 percent in Florida in 2002. Other states, however, struggle to make annual contributions and to make up for shortfalls carried over from the past. Indiana, Oklahoma and West Virginia have each seen a statewide pension fund dip below the 50 percent funding mark in recent years.

And there's another consideration. Often overlooked until recently, commitments state and local governments have made for retiree health care add up to far more than the shortfalls in pension funding. The size of this obligation remains uncertain, but the estimates keep increasing. Credit Suisse, an international financial services company, puts the number at $1.5 trillion for state and local governments--almost half as much as state and local governments have accumulated for pension benefits over the many years they have been saving and investing.

Interstate variations appear in retiree health care funding, too, because of program design. There are great differences in what health care states have promised to retired people. In states that allow early retirement and provide full or...