"For most states, unfunded pension liabilities are the largest of three major long-term obligations weighing on their future finances, ahead of unfunded retiree health care benefits for public employees and outstanding debt. Although still sizable, the gap between what states collectively have set aside and what they owe in public pension benefits narrowed after financial markets surged in fiscal year 2021, according to Pew projections.
States owed a total of $1.25 trillion in unfunded pension benefits in fiscal 2019, the final year before the pandemic"
"Although states have decades to pay off these sums, such spending commitments can have budget consequences both now and later. If the amount states must spend each year to pay down these obligations gets too high, less money may be available to fund other priorities, such as health care or education, or to cover unexpected needs. As part of a state’s full financial picture, these liabilities also can affect credit ratings and borrowing costs."
"Unfunded pension liabilities as a share of 50-state personal income increased sharply during the Great Recession and kept growing until it peaked at 8.4% in fiscal 2016. That’s because many states deferred contributions to pension systems during the downturn and then made insufficient payments to keep unfunded liabilities from rising. Growth was also partially driven by lower-than-expected investment returns, and in some cases, expanded but unfinanced benefits. In fiscal 2014, changes to accounting rules led many states to make more conservative projections about future investment returns, further increasing reported 50-state pension debt."
https://www.pewtrusts.org/en/research-and-analysis/articles/2022/07/07/states-unfunded-pension-liabilities-persist-as-major-long-term-challenge