All Hail Nebraska: Home of Corn, Kool-Aid, and the Best Public Pension

Moody’s declares Nebraska an exception to the morose pension deficit situation of other US states.

(June 27, 2013) — Nebraska has been named as the number one state in terms of its pension deficit, according to the latest data released by Moody’s Investor Services.

The low level of pension benefits is helping to offset its history of underfunding, resulting in its pension liability only representing 6.8% of revenue, the lowest in the country.

“The importance of the funding history comes across in this analysis,” said senior analyst Marcia Van Wagner, adding that turmoil in the financial markets exacerbated low funding levels seen elsewhere in the US.

“It was easy to start out a little bit behind, and then fall far behind, and making it up is going to be challenging for states.”

On aggregate, US states would need to raise $980 billion to cover the shortfalls in their retirement schemes for public sector workers.

And if, hypothetically, all 50 states had to clear their pension shortfalls immediately, it would need, on average, 66 cents of every dollar in revenue to fill the gap.

Unsurprisingly, given recent headlines, Illinois was crowned the worst state in terms of its pension deficit.

The Moody’s paper, which was reported on both the Financial Times and Reuters on Thursday morning, found Illinois has the largest net pension liability in the country at $133 billion, equal to $10,340 per person in the state. The liability is equal to 19.8% of the state’s gross domestic product.

Moody’s also found that 10 US states have public pension liabilities that are at least as big as their annual revenues.

After Illinois, Connecticut had the highest pension burden in the country, with a pension liability equal to 189.7% of revenues. Third place went to Kentucky with 140.9%, fourth to New Jersey with 137.25%, and fifth place was given to Hawaii with 132.5%

Louisiana (130.2%) and Colorado (117.5%) were next, with Maryland having a pension liability equal to 99.5% of its revenues.

Interestingly, Alaska had a higher ratio of net pension liability to GDP than any other state at 20.6%, but it is inundated with oil-related taxes and has a much smaller liability of $10.61 million.

California meanwhile has the second highest pension liability at $120 billion, but that is only $3,206 per head in the state, which ranks as the country’s most densely populated.

Related Content: Californian Unfunded Liabilities: Double What We Thought and Pension Holiday ‘Seemed Like a Good Idea at the Time’