Prairie Headwinds

Efforts to reduce pension deficits face headwinds in states grappling with financial strains. In Kansas, Governor Sam Brownback may deepen the retirement liability by diverting money from the plans to balance the budget.

New Jersey, after overhauling and pledging to fund its pensions, skipped $2.5 billion of promised contributions for fiscal 2014 and 2015 as revenue missed projections.

“The problem New Jersey faces is much worse than it was,” said Douglas Offerman, senior director with Fitch. “The cost becomes higher as the state tries to catch up with its underfunding.”

The accounting change “does not materially impact New Jersey’s fiscal position or the system’s current assets of approximately $40 billion,” Christopher Santarelli, spokesman for Treasurer Andrew Sidamon-Eristoff, said in an e-mail.

Decision Time

Illinois, which had the weakest funding ratios among U.S. states in 2013, at 39.3 percent, won’t report under the new rules until the end of this fiscal year, said Abdon Pallasch, the state’s assistant budget director. Last month, a ruling by a circuit court judge struck down a 2013 law that raised the retirement age. Illinois’s attorney general appealed the decision to the state Supreme Court.

“If the court upholds pension reform it means we will be reporting better numbers,” said Pallasch.

In most cases, retirement systems getting the required payments won’t deplete their assets, so they wouldn’t see funding ratios drop under the new approach, Brainard said.

Kentucky, with the second worst-funded state plans for 2013, with 44 percent of promised assets, overhauled its system last year and officials pledged to keep up with funding.

“Our actuaries say if we meet our assumptions we won’t run out of money,” said William Thielen, executive director of Kentucky Retirement Systems. “It may drop a bit more in the near-term, but in the long run it will come back.”

Scrimpers’ Remorse

Governments are supposed to set aside money every year to invest to pay promised pension benefits. Municipalities that scrimp on the payments and funnel the money toward services or to fill budget holes have to catch up as workers approach retirement age.