State obligations for future retiree costs continue to grow, study finds

Kevin Hardy, Stateline.org on Aug 1, 2025

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While more than a dozen states have shrunk their pension debt obligations in recent years, a majority continue to see growth in the gap between the amount of money retirees have been promised and the amount of cash states have set aside.

In a new analysis released this week, The Pew Charitable Trusts concluded that states’ unfunded pension liabilities grew to nearly $1.3 trillion in fiscal year 2022, largely because of lower-than-expected investment returns.

Total liabilities for future pension costs as a share of state revenues increased more than 22 percentage points between fiscal years 2008 and 2022 — reaching nearly 66% in fiscal 2022, Pew found. It’s an important issue for current public employees and retirees as well as state policymakers, who must balance the growing tab with other spending priorities.

“Long-term liabilities are not always top of mind for state policymakers because they are paid for over decades,” Pew’s report reads. “Yet, when they grow faster than a state’s revenue, those liabilities can squeeze state budgets and constrain future public investments.”

Between 2008 and 2022, unfunded pension obligations grew relative to state revenue in 34 states. In 16 states, unfunded pension liabilities decreased. Pew researchers found Illinois had the largest unfunded pension liability of any state, followed by New Jersey, Mississippi, Connecticut and Kentucky.

In four states — New York, South Dakota, Tennessee and Washington — pension plan assets exceeded what was owed.

Pew found states have made progress specifically on closing gaps on unfunded retiree health care costs — which decreased by nearly 8 percentage points as a share of state revenues between 2008 and 2019, falling to 45% in 2019.

And all 50 states collectively shrunk their outstanding debt loads relative to revenue by more than 6 percentage points from fiscal years 2018 to 2022, which fell to 18% of revenues by 2022.

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Stateline reporter Kevin Hardy can be reached at khardy@stateline.org.

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