US state plans facing massive funding gap, says The Pew Charitable Trusts

US state plans facing massive funding gap, says The Pew Charitable Trusts

US states are facing a rising pension funding gap, with the deficit standing at an eye-watering $1.4 trillion (£998.62 billion) as of 2016, according to The Pew Charitable Trusts.

The 50 US states collectively experienced a $295 billion (£210.34 billion) jump from 2015. It was also the 15th annual increase in pension debt since 2000.

Pew, a non-governmental public policy organisation, analysed the state pension funding gap for fiscal year 2016, as it was the most recent year for which comprehensive data were available for all US 50 states.

Investment returns played a major role in the funding gap increase. The median US public pension plan’s investments returned about 1% in 2016, well below the median assumption of 7.5%—a disparity that added about $146 billion to the debt, according to The Pew Charitable Trusts.

The funding gap would still have increased even if plan assumptions had been met, Pew found, because US states didn’t allocate enough to their systems.

As a whole, they would have needed to contribute $109 billion (£77.73 billion) to pay for both the cost of new benefits and interest on pension debt. The actual amount contributed, $96 billion (£68.46 billion), “fell short”.

US states may have fared a little better in 2017, with preliminary information showing a strong investment performance.

Pew explained in its report: “Public pension funds—which continue to allocate an ever greater share of assets to complex investments such as equities, hedge funds, real estate, and commodities that can produce higher returns than other assets but may also expose plans to increased risk—experienced gains from the upswing in financial markets.”

“However, that same market volatility could have an adverse impact in the long term, especially if lawmakers also fail to make adequate annual contributions to state plans.”

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