* Illinois has the largest pension liability
* Big pension liabilities reflect long-term underfunding
* Nebraska has smallest pension burden
WASHINGTON, June 27 Ten U.S. states have public
pension liabilities that are at least as big as their annual
revenues, according to a Moody's Investors Service report
released on Thursday that found the Illinois pension bill was
equal to 241 percent of its revenues.
The rating agency took a new approach to determining the
health of public retirement systems by weighing each plan's net
pension liability - the difference between the projected benefit
payments and the assets set aside to cover those payments -
against state revenue.
The typical discussion about how much money public pensions
have is incomplete, said the author of the Moody's report,
senior analyst Marcia Van Wagner. By comparing those amounts to
states' revenues, though, the rating agency can get a better
sense of states' abilities to pay for the obligations, she said.
For many of the states that ability is very limited. In
nearly half, the pension liability is equal to half the state's
After Illinois, Connecticut had the highest pension burden
in the country, with a pension liability equal to 189.7 percent
of revenues. That was followed by Kentucky, at 140.9 percent;
New Jersey, 137.2 percent; Hawaii, 132.5 percent; and Louisiana,
s 130.2 percent. Colorado's net pension liability was slightly
more than revenues at 117.5 percent and Maryland's slightly less
at 99.5 percent.
"The states that have the largest relative pension
liabilities have at least one thing in common: a history of
contributing less to their pension plans than the actuarially
required contributions (ARC)," Moody's said in the report, which
looked at data for fiscal 2011.
On the other hand, states with pension liabilities that
represented just a sliver of revenues, such as Wisconsin, "have
little in common outside of a commitment to making
full...payments to their pension plans."
Moody's said Nebraska is an exception, because the state
pays low pension benefits that offset its history of
underfunding. Its pension liability represent only 6.8 percent
of revenue, the lowest in the country.
States and cities contributed less to their pensions than
their actuaries suggested before the financial crisis. When
their revenues crumbled during the 2007-2009 recession they cut
back even more. In most states actuaries calculate how much the
employing governments need to provide to make them whole.
"The importance of the funding history comes across in this
analysis," said Van Wagner, adding that turmoil in the financial
markets exacerbated the low funding levels. "It was easy to
start out a little bit behind, and then fall far behind, and
making it up is going to be challenging for states."
Investment returns provide the lion's share of public
For the report Moody's analyzed data from fiscal 2011, which
ended on June 30, 2012 for most places.
Illinois is notorious for both its underfunded retirement
system and the political battles over how to fix it.
In March, the state settled Securities and
Exchange Commission fraud charges for allegedly misrepresenting
the depth of its pension problems.
According to Moody's, Illinois has the largest net pension
liability in the country, $133 billion, equal to $10,340 per
person in the state. The liability is equal to 19.8 percent of
the state's gross domestic product.
Only Alaska had a higher ratio of net pension liability to
GDP, at 20.6 percent. Alaska, however, is awash with oil-related
taxes. and its much smaller liability of $10.61 million is equal
to 55.2 percent of its revenues.
California had the second highest pension liability, $120
billion, but that is only $3,206 per capita in the state, which
ranks as the country's most populous.