This State Has the Worst Pension Fund Crisis

The Tax Foundation recently published research that shows just how poorly pensions are funded in a number of states. Seventeen states had pensions that were less than two-thirds funded. Five states had pensions that were less than 50% funded. A state with perennial pension problems, Illinois, had a pension that was only 39% funded. Not a single state pension is funded at 100%. Traditionally, these funds pay out retired state workers what the Tax Foundation calls annuities. Some states may not be able to do so.

According to a recent report published by The Pew Charitable Trusts, a public policy think tank, many states are now taking earnest measures to reduce their pension funding gaps. These measures include increased contributions, cost reduction strategies and more sophisticated pension management tools. States also have benefited from once-in-a-generation investment returns following the COVID-19 market crash in March 2020.

The Pew data drives slightly different conclusions from those of the Tax Foundation, but the numbers are close. Based on 2019 data, the most recent year of available comprehensive data, only two states in the country have funding for 100% of their pension obligations. Meanwhile, just over half of all states have a funding shortfall of 25% or more.

Using pension funding data from The Pew Charitable Trusts, 24/7 Wall St. ranked the pension crisis in each state picked the one with the worst pension crisis.

In contrast to 401(k) retirement plans, which have largely supplanted pensions in the private sector, pensions promise a specified monthly income to retirees for the rest of their life. Under this system, the burden of risk falls on the employer. Public sector workers, such as firefighters, police officers and teachers, account for a considerable share of the workforce in parts of the country, and for many of them, pensions are critical to financial security throughout retirement.

The state with the worst pension crisis is Illinois. Here are the details:

  • Pension obligations funded: 38.9%
  • Pension assets: $92.6 billion (10th highest)
  • Pension liabilities: $237.9 billion (third highest)
  • State government workers: 2.6% of workforce (second lowest of 147,000)

Illinois has the most underfunded pension system in the United States. Its state pension system has liabilities totaling $237.9 billion, yet only $92.6 billion in pension assets, enough to cover only 38.9% of its obligations to retired state workers.

One of the largest challenges Illinois faces in closing its $145.3 billion pension gap is the mandated cost of living adjustments. Retired state employees in Illinois receive a 3% annual cost of living increase, regardless of the actual inflation rate.

Methodology: To determine the state with the worst pension crisis, 24/7 Wall St. reviewed the pension funding ratio (a stateโ€™s total pension assets as a share of its pension liabilities) for 2019, the most recent year of available data. All data was compiled by the public policy nongovernmental organization The Pew Charitable Trusts.

We also considered public sector, state-level employment, both in raw numbers and as a share of overall employment, using data from the Bureau of Labor Statistics.

Click here to see every state’s pension crisis ranked.


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