States face growing pension gaps

WASHINGTON (Reuters)-States his short 1.26 trillion in pay for public employee pensions and other retirement benefits, a gap which 26% in one year grew and will for many years to eradicate, according to a report released on Tuesday.

A total of 31 States had pensions that were underfunded in fiscal 2009, the most recent year for which data are available, up from 22 States a year earlier, the Pew Center on the States reported.

The financial crisis in 2008 crushed many pension funds investment, just like historic budget woes forced Governments to cut contributions to these funds.

The combination "made a serious problem even worse," said Susan Urahn, the Pew Center of managing director.

States were in fiscal 2009, which for most States began in July 2008, short 660 billion dollars for future pension payments and 604 billion dollars for other retiree benefits, namely healthcare.

Growing unfunded pension liabilities in addition to still daunting State budget gaps are a top concern of Wall Street rating agencies and investors in the municipal bond market of 2.9 trillion. Most Member States are legally bound to pay retirees benefit, and they must have for any loss that investment from their already depleted treasuries or by loans.

Pensions shall be regarded as "inadequate" if they do not pay at least 80 percent of the liabilities.

Provisional data for fiscal 2010 shows that pension funds levels of ten countries deteriorated further, while only three registered increases, Pew found.

"Overall, these results suggest that while States benefited from better yields in the fiscal year 2010, the legacy of the financial crisis ... a problem for the coming years," Pew said in the report.

Last year, Pew found States short $ 1 trillion in fiscal 2008 on promises to retirees, using data that came out before the financial crisis.

States typically take an annual return of 8 percent and their pension schemes suffered a median 19.1% decline in the market value of their assets in fiscal 2009, Pew said. A critic said that the remaining data does not reflect the improvement of the present terms and conditions.

"Given where we are now in the time, talk about 2009 numbers just not useful. The world has changed in the past 18 months, "said Hank Kim, Director of the National Conference of public employee retirement systems. "The market has come roaring back."

Kim's group released on Monday, a survey of 216 public pension funds showing the average return in the past year was 13.5%.

Illinois has consistently the lowest pensions level between Member States, which exacerbated to 51 percent in fiscal 2009 from 54% in fiscal 2008, according to the Pew report. The State sold in fiscal 2010 and 2011, 7.16 billion dollars of taxable bonds to raise money for her annual pension payments.

A year ago, Governor Pat Quinn signed into law pension reform measure reduce new employee benefits law, which he said that nearly 35 years more than 200 billion dollars would save. The U.S. Securities and Exchange Commission is looking for "communication" by the State with regard to potential savings or reduced contributions to pensions as a result of the law.

Five other countries, including cash-strapped Rhode Island, the funding levels of less than 60 percent, according to Pew. Conversely, New York's pension is 101% financing, followed by Wisconsin at 100 percent and Washington at 99 percent.

States should increase their contributions when yields are low. Since 2000, when the systems are well funded, to 2009 grew this payment requirements 152 percent, dollars, take away from other spending areas-to put pressure on States.

Of late, have Republicans in Congress pressed States to assume investment yield rates closer to 4%, which they consider "risk".

Using assumptions that private pension schemes rely on, that are linked to the yields on corporate bonds of about 5.22%, Pew found that the pension deficit States could be a staggering $ 1.8 trillion. By relying on a tariff based on a 30-year Treasury bond, the Member States found Pew 2.4 trillion deficit could be.