10 Worst-Off State Pension Funds

A report in February by state Controller John Chiang showed that the 30-year cost of providing health and dental benefits for state retirees is $62.1 billion. The unfunded obligation as of June 30 grew $2.2 billion from the $59.9 billion obligation identified as of June 30, 2010. While state pensions are pre-funded, allowing investment returns to reduce liabilities, California pays for retiree health benefits on a "pay-as-you-go" basis, or the minimum amount needed to fund the costs as they are due.

Pre-funding benefits, he says, could reduce that liability by as much as one-third.

Illinois

Years of underfunding has led Illinois' unfunded pension liability to reach an estimated $83 billion. Sustaining that system is costing the state upward of 15% of all general revenue spending.

Democratic Gov. Pat Quinn has faced political opposition for a plan announced last month to restore some solvency. Among the proposals (estimated by the governor to save as much as $85 billion over 30 years): raising the retirement age for a full pension to 67, increasing employee contributions and capping cost-of-living increases.

Rhode Island

Efforts are under way to overhaul Rhode Island's state and municipal pensions. The question is whether it is enough, and in time, to help its ailing cities.

On Tuesday, Standard & Poor's downgraded the credit rating for capital city Providence to BBB, just two ratings away from junk bond status. Just one day earlier, city officials unveiled a plan to trim upward of $16 million from its estimated $423 million in pension obligations, with much of those reductions coming from suspending cost-of-living increases as high as 6% per year. Future pensions will also be capped at one and a half times the median state household income (about $55,000).

Providence is hardly alone in facing pension problems. Neighboring Cranston has a mere 25% funding ratio for its pensions, a $245 million shortfall. Estimates for the unfunded liabilities for the 36 Rhode Island municipalities is estimated at between $2.4 billion and $6 billion.