An Examination of U.S. State Pensions by Total State Expenditures, State Budget Deficit, and Red v. Blue State

Abstract

Pensions are important to government employees. In the USA, some states fund almost 100% of the present value of future pension obligations; while in other states, the funding is substantially lacking. Results of this study show that states with lower state expenditures per capita, relative to states with higher expenditures, have provided better funding of their state pensions. States with lower budget deficits, relative to states with higher budget deficits, paid a significantly higher percent of annual required contributions. This suggests that states that are more fiscally conservative (lower budget deficit) do a better job of making required annual contributions to their state pensions. The red (Republican) states paid a higher proportion of required annual contributions than blue (Democrat) states, 90 versus 84%, respectively; but this difference was not statistically significant. All states have an ethical responsibility to meet the pension obligations owed to their state government employees.