Moody’s Ratings Warns About $980 Billion Government Workers' Pension Shortfall Among US States, With Illinois In Much Trouble

U.S. states face a $980 billion shortfall in funding retirement benefits for public sector workers, according to a study released Thursday by Moody’s Investor Service.

Moody’s analysis found that if all 50 states had to fulfill their pension obligations immediately, they’d need to raise, on average, 66 cents for every existing dollar in revenue, to plug the fiscal gap.

The research also discovered striking differences between states. States like Nebraska need only 7 cents per dollar to cover shortfalls, but Illinois needs $1.41 for every dollar it already collects to meet its obligations.

Illinois bore the largest shortfall, with a $81.3 billion pension burden, followed by Connecticut, Kentucky and New Jersey. Nebraska had the smallest shortfall, with Wisconsin and New York also enjoying smaller budget gaps.

Pension liabilities ranged from 6.8 percent to 241 percent of annual state revenues, with the median ratio at 45.1 percent.

States typically failed to provide contributions to back their pension schemes, the report said. Pension investments also made less returns than expected, another factor underlying the shortfall.

"Large pension burdens are not associated with the size of a state's economy or budget," the report states. Geographically, there's little concentration of burdened states in any one region of the U.S.

The report author, Moody analyst Marcia Van Wagner, told Reuters that financial markets turmoil worsened the problem in recent years.

“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 the states,” she told Reuters.

The data covered fiscal year 2011, which for many states is from about July 2011 to July 2012. The report said fiscal year 2012 will be even worse for pension shortfalls, though fiscal 2013 should see improvements.

Illinois, in particular, has had chronic pension problems, with the Securities and Exchange Commission settling fraud charges with the state in March. The SEC claimed that Illinois misled investors about how the state funds pension obligations.

Moody’s downgraded Illinois’ credit rating earlier this month and also maintained its negative outlook, after Illinois lawmakers failed to fix its “severe pension liabilities.”