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State Pension Funds: Unfunded or Fraud?

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Monique Maldonado
December 18, 2015

Taxpayers work their entire lives, looking forward to when they are eligible to take a permanent break and enjoy their retirement. However, many employees’ pensions are underfunded as states are unable to keep their end of the bargain or suffer from inequity of budget plans.

Pension programs, which vary from state to state, are problematic systems that detrimentally affect the future life of retirees. For example, New Jersey is facing an immense overhaul with their pension system and their state representative is quickly looking for solutions to mitigate what is called “the state’s biggest fiscal challenge.” According to John Reitmeyer of the New Jersey Spotlight, Senate President Stephen Sweeney “introduced a resolution that would ask voters to amend New Jersey’s constitution to prohibit the state from skipping out on the full amount it should be putting aside for employee retirements on an annual basis.” This particular resolution would be the financial settlement to reviving a dying program that is a nearly $40 billion debt to New Jersey.

Bloggers and nonprofits organizations have found that U.S. pension funds have been affected negatively since the economy spiraled downward in 2008. The events of Sept. 11, 2001, disturbed what used to be the world’s largest economy and caused unpredictability with jobs and pension funds. Investment advisory website ThinkAdvisor stated, “State and municipal workers who were assured of guaranteed benefits found their retirement plans in peril as they fought a rising tide of anger from politicians and the public.” Local and city employees faced a morbid reality that their retirement would be in jeopardy from a declining economy and a vulnerable state program.

While there has been a negative affect on retirement plans, financial institutions saw an increase last year, which was a national relief. Bloomberg Business writer Martin Z. Braun reported:

“The finances of more than two-thirds of U.S. state pension plans improved in fiscal year 2014, as a soaring stock market boosted returns and many states stopped incorporating losses from the recession in their pension calculations.” 


This year was the most significant since 2008 for the public pension fund deficiency. With such a national improvement, states are still in a catastrophic decline. For example, Braun noted that Illinois cripples the nation’s progress with “more than $100 billion in debt with a ratio of assets to liabilities of 39.3 percent, which is followed by Kentucky at 45 percent and Connecticut at 50.4 percent.”

What is Congress doing to offset the pension deficit? 

There have been mandated reforms to balance the states’ underfunded programs. When the economy crashed, some states were able to recover more quickly than others. New accounting methods have been presented to mitigate liabilities and increase assets to compensate for market value to get states that are behind to improve. In some reforms, seriously affected states will be exempt from paying securities.

In addition, Loop Capital Markets has reported a “continued bifurcation and a combination of strong pension protections, coupled with low funded levels, which should be especially noted as there is an indicated escalating budgetary pressure.” Finally, the government is reporting positive news of states that significantly improved, hoping to make them examples for others to get on board to establish reforms.

The bottom line? Reforms of state pensions are dependent upon elected officials. That is why citizens should be cognizant of who they nominate in future elections to ensure that innovative pension fund plans are a critical part of their campaign. There is no reason why hardworking Americans should struggle or worry about money to which they are entitled. It is not their problem to find a solution. Keep working and let Congress take care of it!

Future of pension funds

It is up in the air about the future of state pension funds. States such as Florida and Idaho are solid; Illinois, New Jersey and Connecticut are at the bottom of the recovery zone. In order to beat the deficit, states must stop avoiding the problem and reform.

With reform, budget cuts are certain and usually those cuts are from important program such as education, law enforcement and health care. It is time to be clever and think of ways to cut inflated programs, such as federal assistance, and other programs that need to be re-investigated for eligibility requirements to lower the deficit.

Author: Dr. Monique M. Maldonado is a veteran of the U.S. Air Force, an educational consultant, researcher and writer. She is an associate professor for the School of Security and Global Studies in Homeland Security at American Public University System. She is also a lead adjunct professor for the School of Graduate and Degree Completion programs at Tiffin University. Dr. Maldonado can be reached at [email protected].

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2 Responses to State Pension Funds: Unfunded or Fraud?

  1. Julie Ann Racino Reply

    December 20, 2015 at 10:47 pm

    In the 1980s, pension funds in the US were considered the backbone of labor, of a good middle class life, retirement and benefits (e.g., sick days, holidays).

    That was before the middle class pension funds were taken (similar to cost shifting, designated funds moved “somewhere”), and then the 2008 recession occurred.

    The article bodes well for the post-2008 recovery of fund balances and labor will benefit as “eagle eyes” watch the government and fund managers with oversight previously neglected.

    Labor (usually blue collar workers)is often associated with manufacutring industries, and later with restaurant and food industries and the better to do white collar classes.

    Currenty, I support unionization and labor pensions for the US Direct Support Professional Workforce (Larson et al, 2014 in Racino, 2014) and urge also a look at the downsizing negatively effecting the middle class manager in the US.

    Please feel free to join me at http://www.crcpress.com/authors

    Best wishes for the holidays, and yes, the university sector has pensions and benefits as do any writers who are called “homeland security”.

  2. Karen D Reply

    December 19, 2015 at 3:21 pm

    Well said!

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