Pew: US State Pension Funding Gap Rises to $1.4 Trillion in 2016

The funding deficit for U.S. state public pension systems rose to a record-high $1.4 trillion in fiscal 2016, a nearly $300 billion increase from fiscal 2015, according to a Pew Charitable Trusts report released on Thursday.

The public worker retirement funds reported only $2.6 trillion in assets to cover total pension liabilities of $4 trillion, with the report pegging the shortfall on investment returns falling short of assumptions and inadequate state contributions to pension systems, Pew reported.

Another factor was a reduction in the assumed rate of investment returns for some plans that pushed the overall unfunded liability higher by $138 billion.

"Many state retirement systems are on an unsustainable course, coming up short on their investment targets and having failed to set aside enough money to fund the pension promises made to public employees," the report said.

Based on preliminary information, Pew said unfunded liabilities should decrease in 2017 due to stronger investment returns last year. It added that funds continue to allocate bigger shares of their assets to riskier investments such as equities, hedge funds, real estate and commodities that can produce higher returns.

Retirement systems in New York, South Dakota, Tennessee and Wisconsin were at least 90 percent funded in 2016, while pension funds in Colorado, Connecticut, Illinois, Kentucky and New Jersey were less than 50 percent funded, according to Pew. Another 17 states had less than two-thirds of the assets needed to pay future retirement benefits.

Kentucky and New Jersey had the lowest funded ratios among states at 31 percent and Wisconsin had the highest at 99 percent.