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Many State Pension Systems Have Huge Funding Gaps

The crisis jeopardizes the finances of public-sector workers and retirees

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State pension systems are facing a funding gap of record levels, according to a new study.

A public-employee pension crisis for state governments has deepened to a record level even after nearly nine years of economic recovery for the nation, according to a study released Thursday, leaving many states vulnerable if the economy hits a downturn.

The massive unfunded pension liabilities are becoming a real problem not just for public-sector retirees and workers concerned about their future, but also for everyone else. As states try to prop up their pension funds, less money is available for core government services such as education, public safety and parks.

The annual report from the Pew Charitable Trusts finds that public-worker pension funds with heavy state-government involvement owed retirees and current workers $4 trillion as of 2016. They had about $2.6 trillion in assets, creating a gap of about one-third, or a record $1.4 trillion.

While the study looks only at pension funds with major state-government involvement, systems run by cities, counties, school districts and other local entities have had similar problems. Just this week, the Chicago suburb of Harvey, a city with a history of underpaying its pension obligations, announced deep layoffs in its police and fire departments. Officials blamed their rising pension obligations.

Larger cities and school districts across the country also have had service cuts or freezes over the years to pay for rising costs for their retirees.

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