Report: Tennessee has lowest unfunded pension liabilities per capita in U.S.

By Jon Styf | The Center Square, Jun 13, 2022 -  Tennessee again had the lowest unfunded pension liabilities in the U.S., according to the new rankings from the American Legislative Executive Council.

But that liability grew from $6,345.77 per capita in 2011 to $8,511.92 per capita in the new 2022 rankings.

Connecticut, Illinois and Alaska had the highest unfunded liabilities per capita with Alaska holding the 50th ranking with $42,829.

Tennessee also was atop the list in unfunded liabilities as a percentage of gross state product at 15.47% while Indiana was second at 18.33% and Mississippi was worst at 80.85%.

"This year we found that there are $8.2 trillion unfunded liabilities in state pension plans," ALEC Vice President of Policy and study author Lee Schalk explained.

The study uses a risk-free discount rate (the rate of return on a pension plan’s investments), expressed as a percentage to determine the value of liabilities that these funds must pay in the coming decades.

This discount rate used by ALEC to determine pension liability is based on the yields of U.S. Treasury Bonds (down to 1.13% from 2.34% due to historically low interest rates) and a fixed discount rate of 4.5% that is considerably lower than the discount rate expectations of most pension funds. Tennessee's fund has an expected discount rate of 7.25%. 

The report is the sixth edition of ALEC’s annual report, which looks at government pension plans and their assets and liabilities. The report says that the liabilities account for "$25,000 for every man, woman and child in the United States."

Tennessee ranked 16th in its overall liability with $58.8 billion in unfunded pension liability. Vermont was the lowest at $14.4 billion while California has promised $1.5 trillion in unfunded liabilities.

"If the CEOs and CFOs in the private sector signed off on financial statements with the accounting used by state and local governments, they’d be in prison," said Jonathan Williams, ALEC's Executive Vice President of Policy. "That is the kind of Enron-style accounting, unfortunately, that has gone on for far too long in state and local governments. And so our report cuts through some of the bad accounting and really gives an apples-to-apples comparison on how states are funding, or in many cases unfortunately not funding, the pension obligations."

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