For those who have kept up with Pioneer’s work on pensions, it’s clear that Massachusetts’s public retirement systems are troubled. However, readers still may wonder how these systems compare to those in other states.
Unfortunately, a study by the Pew Charitable Trusts shows that the Commonwealth’s state-run pensions are underperforming relative to other states. This is especially concerning given that, as a whole, public pension systems nationwide are considerably underfunded. Using data from 2017 — “the most recent year for which comprehensive data were available for all 50 states” — the report found that the average funded ratio of state-run pensions was 69.1%. At just 59.9% in 2017, the funded ratio of Massachusetts was almost 10 percentage points below the national average. Moreover, only nine states had a lower funded ratio than the Commonwealth. In sum, Massachusetts lags behind an already-low standard.
However, compared to the other New England states, Massachusetts was relatively average. With the exception of Maine, state-run pensions in five out of the six New England states had a funded ratio below 65%. The only two states with lower funding levels than Massachusetts were Connecticut, which was 45.7% funded, and Rhode Island, which was 53.7% funded. Two of the New England states with better performing state pensions were New Hampshire and Vermont which had funded ratios of 62.7% and 64.3%, respectively.
Maine defied its underperforming neighbors and actually had one of the top state-run pension systems in the country, touting a funded ratio of 81.9%. In contrast to its peers, Maine’s state pension system is set to be fully funded by 2028 — less than a decade away. This is largely due to the state’s careful planning starting in 1995, when it amended its constitution to effectively prohibit increases in unfunded liabilities.
|State||Funded Ratio (2017)||Unfunded Liability (2017)|
It is important to note that funding levels of the Commonwealth’s three state-run pensions — the Boston Teachers’ Retirement System, the Massachusetts Teachers’ Retirement System, and the State Employees’ Retirement System — improved between 2017 and 2018, although, the improvements were marginal. According to MassPensions.com, the funded ratio of the Boston Teachers’ Retirement System increased by 0.8 percentage points between 2017 and 2018, from 39.3% to 40.1%. During the same time, the funding level of the Teachers’ Retirement System increased from 52.1% to 52.4%, just 0.3 percentage points, while that of the State Retirement System increased by 0.2 percentage points from 64.7% to 64.9%. This translated to only a nominal increase in the overall funded ratio of Massachusetts’s state-run systems.
The Commonwealth must do more if it truly wants to improve the health of the state’s pension systems. Massachusetts’s legislators should consider taking a page out of Maine’s playbook.
Cole Kroninger is a Roger Perry Transparency Intern at Pioneer Institute. He is a rising senior at Hamilton College where he studies Economics.