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National Review: North Carolina pension program looks good compared to other states

Former John Locke Foundation Vice President, Jon Pritchett, writes for National Review that several states have unfunded liabilities requiring major reforms that politicians are ignoring.

According to a comprehensive survey by the American Legislative Exchange Council (ALEC) of 280 state-administered public-pension plans, the unfunded liabilities of state-administered pensions now exceed $6 trillion. The number increased by $433 billion in the last twelve months. An April report from Pew Charitable Trusts shows that state-pension debt has increased for 15 consecutive years. While this growing gap is a major concern for current public-sector employees and retirees, it should also worry the rest of us.

But, North Carolina looks good compared to other states.

The states with the largest per capita debt are somewhat surprising: Alaska, Connecticut, Ohio, Illinois, and New Mexico. So are the states with the smallest per capita share of debt: Tennessee, Indiana, Nebraska, Wisconsin, and North Carolina.

However, perhaps the most important measure for a state’s pension health is its funding ratio. This is the percentage of the total pension obligations that is currently funded. The states that are the least funded to meet obligations include Connecticut (20 percent), Kentucky (21 percent), Illinois (23 percent), Mississippi (24 percent), and New Jersey (26 percent). In other words, Connecticut has saved $1 for every $5 of known debt obligation it has for current and future state system retirees. The states in the best shape: Wisconsin (62 percent funded), South Dakota (48 percent), New York (46 percent), Tennessee (46 percent), and North Carolina (45 percent).

What do the data tell us? For starters, note the strong correlation between states that have managed their pension programs responsibly and states with pro-growth economic policies that favor free-market solutions over government ones. Note that each of the five states with the highest funding levels are also states that rely less on the government to sustain their economies. In none of these states does government control more than 45 percent of the economy, which puts these states in the top half of that measure.

You can find the full piece here.

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