* Illinois has the largest pension liability
* Big pension liabilities reflect long-term underfunding
* Nebraska has smallest pension burden
WASHINGTON, June 27 (Reuters) – Ten U.S. states have public pension liabilities that are at least as big as their annual revenues, according to a Moody’s Investors Service report released on Thursday that found the Illinois pension bill was equal to 241 percent of its revenues.
The rating agency took a new approach to determining the health of public retirement systems by weighing each plan’s net pension liability – the difference between the projected benefit payments and the assets set aside to cover those payments – against state revenue.
The typical discussion about how much money public pensions have is incomplete, said the author of the Moody’s report, senior analyst Marcia Van Wagner. By comparing those amounts to states’ revenues, though, the rating agency can get a better sense of states’ abilities to pay for the obligations, she said.
For many of the states that ability is very limited. In nearly half, the pension liability is equal to half the state’s annual revenue.
After Illinois, Connecticut had the highest pension burden in the country, with a pension liability equal to 189.7 percent of revenues. That was followed by Kentucky, at 140.9 percent; New Jersey, 137.2 percent; Hawaii, 132.5 percent; and Louisiana, s 130.2 percent. Colorado’s net pension liability was slightly more than revenues at 117.5 percent and Maryland’s slightly less at 99.5 percent.
“The states that have the largest relative pension liabilities have at least one thing in common: a history of contributing less to their pension plans than the actuarially required contributions (ARC),” Moody’s said in the report, which looked at data for fiscal 2011.
On the other hand, states with pension liabilities that represented just a sliver of revenues, such as Wisconsin, “have little in common outside of a commitment to making full…payments to their pension plans.”
Moody’s said Nebraska is an exception, because the state pays low pension benefits that offset its history of underfunding. Its pension liability represent only 6.8 percent of revenue, the lowest in the country.
States and cities contributed less to their pensions than their actuaries suggested before the financial crisis. When their revenues crumbled during the 2007-2009 recession they cut back even more. In most states actuaries calculate how much the employing governments need to provide to make them whole.
“The importance of the funding history comes across in this analysis,” said Van Wagner, adding that turmoil in the financialmarkets exacerbated the low funding levels. “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 states.”
Investment returns provide the lion’s share of public pension revenues.
For the report Moody’s analyzed data from fiscal 2011, which ended on June 30, 2012 for most places.
Illinois is notorious for both its underfunded retirement system and the political battles over how to fix it. In March, the state settled Securities and Exchange Commission fraud charges for allegedly misrepresenting the depth of its pension problems.
According to Moody’s, Illinois has the largest net pension liability in the country, $133 billion, equal to $10,340 per person in the state. The liability is equal to 19.8 percent of the state’s gross domestic product.
Only Alaska had a higher ratio of net pension liability to GDP, at 20.6 percent. Alaska, however, is awash with oil-related taxes. and its much smaller liability of $10.61 million is equal to 55.2 percent of its revenues.
California had the second highest pension liability, $120 billion, but that is only $3,206 per capita in the state, which ranks as the country’s most populous.