State Pensions: $1.4 Trillion Underfunded. Illinois at 45%.
State pension funds are collectively $1.4T underfunded. Illinois is funded at just 45%. Kentucky at 54%. These are deferred obligations to 14 million public workers that will reshape state budgets for decades.
$1.4TTotal state pension underfunding (2024)
45%Illinois funded ratio — worst in the nation
54%Kentucky funded ratio — second worst
14MPublic workers whose retirement depends on these funds
Choose your depth. The data doesn't change — just the explanation.
State pension funds are like giant savings accounts for government workers' retirement. The problem: states have promised to pay out way more than they have saved. Illinois promised workers $1 in retirement for every 45 cents it has put away. Kentucky has 54 cents for every $1 owed. Together, all 50 states are short $1.4 trillion — that's a gap they'll have to fill eventually with higher taxes or cuts to services.
Public pension funds cover teachers, police, firefighters, and other government workers. States are supposed to keep funds "actuarially sound" — meaning the money plus expected investment returns will cover future obligations. The "funded ratio" shows what fraction of that goal they've achieved. A ratio below 70% is considered stressed; below 60% is dangerous. Illinois (45%) and Kentucky (54%) are so underfunded that absent extraordinary returns or benefit cuts, the math doesn't work. The collective gap is $1.4T — money that must eventually come from taxpayers.
Pension liability data from public CAFR (Comprehensive Annual Financial Report) filings and Federal Reserve Financial Accounts Z.1 (State and Local Government Employee Retirement Funds). Funded ratio = actuarial_assets / actuarial_liabilities (market value vs. present value of accrued benefits). Discount rate assumptions vary: states using 7.5% assumed return are understating liabilities vs. risk-free rate (3.5%) basis. Illinois gap widens from $235B (7.5% discount) to $450B+ (risk-free). Moody's adjusted funding ratios (using 5.5% discount): Illinois 27%, Kentucky 38%. These would be the "true" funded ratios under conservative accounting.
Pension data sources: (1) Pew Charitable Trusts state pension tracker: https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2023/06/state-pension-funds-see-sharp-decline-in-funding. (2) Federal Reserve Z.1 release: Table L.120 (State and Local Government Employee Retirement Funds). (3) Federal Audit Clearinghouse for CAFR data. Key fields: actuarial_value_of_assets, actuarial_accrued_liabilities, funded_ratio, annual_required_contribution, actual_contribution. Cross-reference with FRED state tax revenue (series format STATExxURRTQFSQ for quarterly unreserved revenues) to compute pension_liability / tax_revenue stress ratio.
State Pension Funding Ratios (2024)
The funded ratio shows how much of promised pension benefits is actually backed by assets. Below 70% is stressed; below 60% is dangerous; below 50% is crisis territory.
State Pension Funded Ratios — All 50 States
Funded ratio = actuarial assets / actuarial accrued liabilities. Source: Pew Charitable Trusts + Federal Reserve Z.1. Red = crisis (<60%), Yellow = stressed (60–70%), Green = healthy (>80%).
Illinois pension declined from 78% funded (2000) to 45% (2024). Constitutional protection means benefits cannot be cut. Gap grows geometrically.
Pension Underfunding vs. State Tax Revenue ($B)
States where pension gap exceeds annual tax revenue face existential fiscal stress. Illinois gap is 1.6× annual state tax revenue.
🚨 Illinois: The Constitutional Trap
The Illinois Constitution (Article XIII, Section 5) explicitly protects pension benefits from being diminished or impaired — this was upheld by the Illinois Supreme Court in 2015. This means Illinois cannot cut benefits, only grow contributions. At the current trajectory, pension costs will consume 27% of the Illinois state budget by 2028 (vs. 22% in 2024). The escape valves: extraordinary investment returns (modeled at 7%, historically achieved at 5.8%), a tax increase, a constitutional amendment (requires 60% legislative vote + majority referendum), or federal relief (precedent: no state has ever defaulted on pensions under federal intervention).
Sources & Methodology
Pew Charitable Trusts State Pension Tracker (annual) · Federal Reserve Z.1 Financial Accounts Table L.120 · Federal Audit Clearinghouse CAFR data · ACS (public employment demographics) · FRED state tax revenue series · Open States pension reform legislation · CourtListener pension benefit litigation · IRS Statistics of Income (public sector wage trends). Funded ratio = actuarial_assets / actuarial_accrued_liabilities per GASB 67/68 standards. $1.4T total gap from Pew + Cato Institute actuarial analysis (risk-free discount rate). Illinois constitutional protection: IL Const. Art. XIII, §5, Pension Protection Clause.