Minnesota Ranks #36 for How Well Public Pension Plans are Funded, Wisconsin #1

State retirement plans continue to face funding deficits nationwide. The pervasive pension underfunding not only affects current and retired public employees but taxpayers who provide the wages for government employees and help financially cover the promised benefits of defined benefit pension plans.

The most recent data available, FY 2017, show a combined $1.28 trillion in state plan funding deficits, according to the Tax Foundation. To determine how well funded public pension plans are, the market value of state pension plan assets is measured in proportion to accrued liabilities. If a state’s funded ratio is low, the pension plan is not adequately funded, the Tax Foundation continued. “Low funding levels are challenging not only because of the large contributions required to make up the debt, but also because they generate less in investment earnings.” Higher funded ratios tend to keep up with accrued liabilities.

The map below shows these funded ratios across the country. Minnesota ranks #36, with 63 percent of its public pension plans funded. Our neighbors Wisconsin and South Dakota are doing the best with funded ratios at 103 and 100 percent.

Source: The Tax Foundation

The differences in the funding levels are largely driven by policy choices. The Center has long warned legislators about the trouble Minnesota’s public pension system is in. Our unfunded liabilities per capita are at $20,149 according to calculations by the ALEC Center for State Fiscal Reform. This means every resident in the state is on the hook for $20,149 and will most likely face future tax burdens to assist in fulfilling unfunded promises.

Minnesota needs to consider switching to more fiscally responsible pension plan structures such as a defined contribution plan or even a hybrid pension plan that offers a small defined benefit pension plan in tandem with a defined contribution plan, similar to a 401(k). The fiscal state of Minnesota’s public pension system has reared its head as a financial tapeworm. We have promised pensions we cannot afford and future changes are needed.