State House domeThe gap between the promises states have made for public employees’ retirement benefits and the money set aside to pay for them grew to at least $1.26 trillion in fiscal year 2009—a 26% increase in one year—according to a new report from the Pew Center for the States.

The numbers are now nearly two years old, and reflect the depth of the investment losses in 2008 and 2009. The numbers also do not show the sharp improvement in investment returns in 2010.

The numbers for Maryland also do not reflect the changes in pension benefits and contributions made in this session of the legislature. But they help explain why the governor and lawmakers felt compelled to act.

How does Maryland compare with other states?

Maryland ranks 39th among the 50 states in the percentage of its funding at 65%.

At the top are New York (101%) and Wisconsin (100%), a level of funding  Maryland was at 12 years ago. Illinois is at the bottom with 51% funding and West Virginia is next at 56%.

Nineteen states are at or above the 80% funding mark that Maryland has targeted to reach in 12 years through the pension changes made this year. Those states include Virginia (80%), Pennsylvania (81%) and Delaware (94%).

Maryland is among the 16 states that have reported fiscal 2010 data, but some of those states actually showed declines in pension values. Collectively, the average funding level fell slightly; Maryland’s went down from 65% to 64%.

Ranking states based on how much they pay toward their Annual Required Contribution, Maryland ranks 33rd at 84%. The annual required contribution (ARC) is what actuaries tell the states they should contribute to maintain sufficient funding for their pensions. Obviously, although the ARC is ostensibly “required,” many states including Maryland do not treat it as a requirement.

–Len Lazarick