America's Public Retirement Systems: Stresses in The System

a special series report of the southern legialtive conference
Americas Public Retirement Systems

[Stresses in the System]
Sujit M. CanagaRetna
Senior Fiscal Analyst
Southern Legislative Conference
s p e c i a l
s e r i e s
r e p o r t
o f
t h e
s o u t h e r n
l e g i s l a t i v e
c o n f e r e n c e
Americas Public Retirement Plans

[Stresses in the System]
Sujit M. CanagaRetna
Senior Fiscal Analyst
Southern Legislative Conference
Copyright October 2004

Southern Office
The Council of State Governments
P.O. Box 98129
Atlanta, Georgia 30359
404/633-1866
www.slcatalanta.org
Colleen Cousineau, Executive Director
Contents
Introduction............................................................................................................................................................................. 2
Chapter 1: History and Origins of Public Sector Retirement Systems.............................................................................. 5
Table 1: Government vs. Non-government Securities Split in Public Retirement System Portfolios ......................... 6
Public and Private Sector Pension Plans: Major Differences ............................................................................................. 6
Table 2: Characteristics of Employer Pension Plans.................................................................................................... 7
Types of Public Sector Retirement Systems ....................................................................................................................... 8
Administering Retirement Systems in the Public Sector .................................................................................................. 10
Chapter 2: Sources of Retirement Income: Social Security, Private Savings and Corporate Pension Plans............... 11
Social Security .................................................................................................................................................................. 11
Table 3: CBOs and the Social Security Trustees Long-term Economic Assumptions............................................. 13
Personal Savings ............................................................................................................................................................... 13
Table 4: Personal Savings Rate and Disposable Income ........................................................................................... 14
Figure 1: Personal Savings as a Percent of Disposable Income ................................................................................ 14
Table 5: Homeownership Rates as a Percent of Total Households ........................................................................... 15
Corporate Pension Plans ................................................................................................................................................... 15
Chapter 3: Economic and Fiscal Variables Influencing Public Sector Retirement Systems.......................................... 20
GDP Growth...................................................................................................................................................................... 20
Table 6: Percent Change From Preceding Period in Real GDP and Other Key Economic Indicators....................... 21
Unemployment Trends ...................................................................................................................................................... 22
Table 7: National Unemployment Levels................................................................................................................... 22
Figure 2: National Unemployment Rate .................................................................................................................... 22
Federal Budget .................................................................................................................................................................. 23
Table 8: Federal Budget Deficit/Surplus as a Percent of GDP ................................................................................... 23
Consumer Confidence ....................................................................................................................................................... 24
Figure 3: Index of Consumer Sentiment .................................................................................................................... 24
Energy Prices .................................................................................................................................................................... 25
Figure 4: Regular Gasoline Prices: Nominal and Real.............................................................................................. 25
Interest Rates..................................................................................................................................................................... 25
Figure 5: Federal Funds Rate ..................................................................................................................................... 26
Equity Markets .................................................................................................................................................................. 26
Table 9: Dow Jones Industrial Average ...................................................................................................................... 28
Table 10: Significant Milestones: NASDAQ Composite Index Records................................................................... 28
Figure 6: S&P 500 Index ............................................................................................................................................ 29
Figure 7: Russell 2000 Index...................................................................................................................................... 30
Figure 8: National Unemployment Rate .................................................................................................................... 31
Table 11: Average Annual Unemployment Rate by State .......................................................................................... 31
Table 12: Year-Over-Year Change in Quarterly State Tax Revenue........................................................................... 32
Chapter 4: Analysis of Federal Government Data on Public Sector Retirement Systems............................................. 33
State and Local Government Retirement Plan Trends ...................................................................................................... 33
Table 13: National Summary of State and Local Government Employee Retirement System Finances................... 34
Table 14: State and Local Government Employee Retirement System Finances Composition of
Cash and Investment Holdings by Percent ........................................................................................................... 35
Figure 9: Selected Investment Types: State and Local Government Retirement Systems ........................................ 36
Table 15: State and Local Government Employee Retirement System Finances Breakdown of
Total Receipts and Payments by Amount .............................................................................................................. 37
Figure 10: Receipts and Payments ............................................................................................................................. 38
Table 16: Number and Membership in State and Local Government Employee Retirement Plans ......................... 38
Figure 11: Changes in Membership Profile: State and Local Government Retirement Plans ................................... 39
Table 17: Number and Membership of State and Local Government Employee Retirement Systems ..................... 40
Table 18: Cash and Investment Holdings of State and Local Government Employee Retirement Systems ............ 42
Table 19: Securities as a Percent of Total Cash & Investment Holdings ................................................................... 44
Table 20: Percentage Breakdown of Government Securities vs. Non-government Securities .................................. 45
Revenues of State and Local Government Employee Retirement Systems...................................................................... 46

Table 21: Revenues for State and Local Government Retirement Systems ............................................................... 47
Table 22: Revenues of State and Local Government Retirement Systems Percentage Differences
in Selected Criteria ............................................................................................................................................... 49
Expenditures of State and Local Government Employee Retirement Systems ................................................................ 50
Table 23: State and Local Government Retirement System Expenditures................................................................. 50
Table 24: Percentage Differences in Total Payments, Total Receipts and Benefits ................................................... 51
Chapter 5: Analysis of Information in The Council of State Governments Southern Office Survey .......................... 52
Analysis of Information in CSG Survey ........................................................................................................................... 52
Table 25: Five Plans with Lowest and Highest Market Value of Assets .................................................................... 53
Table 26: Five Plans with Lowest and Highest Annuitants as a Percentage of Actives ............................................. 54
Table 27: Five Plans with Lowest and Highest Actuarial Funding Ratio................................................................... 55
Table 28: Five Plans with Highest and Lowest Actuarial Unfunded Liability or Surplus Amount ........................... 56
Public Sector Retirement Plan News from Across the Country........................................................................................ 56
Alabama....................................................................................................................................................................... 56
Arkansas ...................................................................................................................................................................... 57
California..................................................................................................................................................................... 58
Connecticut.................................................................................................................................................................. 59
Florida ......................................................................................................................................................................... 59
Georgia ........................................................................................................................................................................ 59
Illinois.......................................................................................................................................................................... 60
Kansas ......................................................................................................................................................................... 60
Louisiana ..................................................................................................................................................................... 60
Maine........................................................................................................................................................................... 62
Maryland ..................................................................................................................................................................... 63
Mississippi................................................................................................................................................................... 64
New York..................................................................................................................................................................... 64
North Carolina............................................................................................................................................................. 65
Oregon ......................................................................................................................................................................... 66
Pennsylvania................................................................................................................................................................ 66
South Carolina............................................................................................................................................................. 66
Figure 12: South Carolina Retirement System, Plan Net Assets................................................................................ 67
Tennessee..................................................................................................................................................................... 67
Texas............................................................................................................................................................................ 68
Virginia ........................................................................................................................................................................ 69
West Virginia ............................................................................................................................................................... 69
Wisconsin .................................................................................................................................................................... 70
Conclusion ............................................................................................................................................................................. 71
Policy Options and Considerations ................................................................................................................................... 73
Methodology .......................................................................................................................................................................... 75
Appendices
Appendix A: Survey Device.............................................................................................................................................. 78
Appendix B: Cash and Investment Holdings of State and Local Government Employee Retirement Systems............... 80
Appendix C: Revenues for State and Local Government Retirement Systems ................................................................ 83
Appendix D: State and Local Government Retirement System Expenditures.................................................................. 86
Appendix E: Market Value of Assets ................................................................................................................................ 89
Appendix F: Annuitants as a Percentage of Actives.......................................................................................................... 92
Appendix G: Actuarial Funding Ratio............................................................................................................................... 95
Appendix H: Actuarial Unfunded Liability or Surplus Amount ....................................................................................... 97
Endnotes ................................................................................................................................................................................ 99
Americas Public Retirement Plans:

Stresses in the System
The long-term economic health of the United States is threatened by $53
trillion in government debts and liabilities that start to come due in four years
when baby boomers begin to retire. . . The $53 trillion is what federal, state and
local governments need immediatelystashed away, earning interest, beyond
the $3 trillion taxes collected last yearto repay debts and honor future benefits
promised under Medicare, Social Security and government pensions.
USA Today, October 2004
The public retirement system community has experienced a confluence of
events that is probably unprecedented. . . . Pension funds went from a $245
billion over-funded condition in 2000 to a $366 billion shortfall in 2003.
National Association of State Retirement Administrators, December 2003 and
Wilshire Associates, March 2004
The Pension Benefit Guaranty Corporation, the federal organization that
protects the pensions of 44 million American workers, [announced] that its
deficit reached a record $11.2 billion last year and warned that it is continuing to
hemorrhage money.
The Baltimore [Maryland] Sun, January 2004
Tens of millions of Americans are seriously under prepared to meet their
financial needs in retirement. As many as 40 percent of Americans have saved
almost nothing for retirement.
National Retirement Planning Coalition, February 2004
In 2008--just four years from now--the first cohort of the baby-boom generation
will reach 62, the earliest age at which Social Security retirement benefits may
be claimed and the age at which about half of prospective beneficiaries choose
to retire; in 2011, these individuals will reach 65 and will thus be eligible for
Medicare. At that time, under the intermediate assumptions of the Old Age
Survivor and Disability Insurance (OASDI) trustees, there will still be more
than three covered workers for each OASDI beneficiary; by 2025, this ratio is
projected to be down to two and a quarter. . . . If this fundamental change in the
age distribution materializes, we will eventually have no choice but to make
significant structural adjustments in the major retirement programs.
Alan Greenspan, Chairman, Federal Reserve Board, Testimony before the
Committee on the Budget, U.S. House of Representatives, February 2004
Stresses in the System, page 1
Introduction
ew other topics generate more spirited discourse and disagreement among policymakers than a
discussion on devising a comprehensive retirement system to account for the huge number of baby
boomers scheduled to retire in the next few years.1 The primary goal of this retirement system
would be to sustain participants with adequate benefits for the duration of their retirement years.
However, a spate of economic setbacks in the past few years, such as the sputtering stock market, rising
deficits at the federal and state levels, rising fears over terror attacks, mounting corporate scandals affecting
consumer confidence, dwindling corporate profits resulting in severe cutbacks and a jobless economic
recovery, continues to cause stresses in the retirement plans of millions of Americans. Hence, it probably is
not a stretch to maintain that an increasing number of Americans, particularly those nearing retirement age,
remain extremely apprehensive about their retirement situation in the years ahead.
Financial planners often recommend the
three-legged stool concept in planning for retirement. Each leg of the stool is supposed to represent
a source of income in retirement, and the goal is
to cumulatively attain a standard of living at least
comparable to the one experienced prior to retirement. In this analysis, if the first leg of the stool
is Social Security income, the other two legs of
the stool refer to personal savings and retirement
or pension system income. Unfortunately, a close
review of national financial and demographic trends
reveals that all three legs of this metaphorical
retirement stool remain wobbly, a development
that threatens to seriously jeopardize the retirement
plans of a majority of Americans.
Any discussion of a comprehensive retirement system inevitably brings up the issue of the
long-term solvency of Social Security, particularly
in the context of the growing importance of Social
Security payments to retirees. For some years now,
analysts have stressed that policymakers need to
initiate concrete steps to prepare for the graying
of America and the increased number of retirees.
The number of people in the United States over
65 is expected to increase significantly by 2030;
specifically, that age group is forecast to grow from
about 13 percent of the total population in 2000 to 20
percent in 2030 and to remain above 20 percent for
at least several decades thereafter.2 Consequently,
a great deal of attention has been directed toward
Americas Public Retirement Systems, page 2
revamping Social Security, which, since its inception

in 1935, has become the countrys largest incomemaintenance program. Social Security payments
are essential for most retirees; these payouts make
up about 40 percent of the total income of people
ages 65 and over. In addition, about two-thirds of
those people receive at least half of their income
from Social Security, and one-third receives at least
90 percent.3 (In 2003, annual Social Security benefits averaged $10,740 per recipient.4) Trustees of
the Social Security and the Medicare trust funds (the
other government program of critical importance to
senior Americans) predict that the programs will
continue to run surpluses of more than $200 billion
a year for at least the next decade.5 However, based
on current projections, Medicare will start running
deficits in 2013 and run out of money in 2026, unless
remedial action is initiated. Commencing in 2018,
Social Security starts paying out more than it takes
in and will begin dipping into its trust fund. Similarly, without remedial measures, by 2044, this trust
fund also will be depleted.
Unfortunately, alongside the tenuous longterm financial viability of Social Security, there
are serious problems associated with the other two
legs of the symbolic retirement stool. In fact, it is
becoming increasingly clear that relying on personal
savings to bolster retirement income is not a realistic
option for most Americans. According to the federal
government, the nations personal savings rate has
plummeted from 11.2 percent of disposable income

in 1982 (the highest level in the past three decades)
to 1.7 percent in 2001, a precipitous decline indeed.6
In its 2004 National Retirement Confidence Survey,
Teachers Insurance and Annuity AssociationCollege Retirement Equities Fund (TIAA-CREF),
the giant financial service provider, reported that
only 58 percent of workers in the survey indicated
that they currently are saving for retirement at all, a
proportion that has remained relatively unchanged
since 2001.7 Moreover, nearly half of all workers
(45 percent), and a third of those 55 and older (29
percent), indicated that they have household assets,
excluding the value of their home, below $25,000.
Further compounding this rapidly shrinking
personal savings rate is the mountain of debt accumulated by most American households in recent
years. In fact, even though consumer spending has
been critical in propelling the economy forward
in the aftermath of the 2001 recession, this has
resulted in the accrual of substantial debt. Since
1999, household debt has leapt from 70 percent
to nearly 83 percent of the current gross domestic
product (GDP), i.e., the total value of goods and
services produced in the nation.8 Moreover,
consumers racked up $1.1 trillion in new mortgage
and consumer debt between the end of 2001 and
the third quarter of 2003, increasing total consumer
and mortgage loans held by Federal Deposit Insurance Corporation (FDIC) insured institutions to $2.6
trillion.9
Finally, the remaining leg of the figurative
retirement stool, income flows from both public
and private pension plans, is rickety too. Given the
serious setbacks experienced by the stock market
over the three-year period 2000 through 2002, both
public and private retirement plans hemorrhaged
enormous amounts of cash. After a monumental
expansion in the five-year period 1995 through
1999, where the year-to-year change in the Dow
Jones Industrial Average (DJIA) catapulted forward
by almost 25 percent annually, in the 2000 through
2002 period, the year-to-year DJIA shrank by an
annual rate of 10 percent.10 The other major stock
market indices, from the S & P 500 Index to the
Russell 2000 Index to the Nasdaq Composite, all
displayed identical trends for these two periods. In
fact, the technology-heavy Nasdaq Composite was
particularly affected by the severe declines on Wall
Street during the same period.
These stock market developments and ongoing
liability growth, according to the National Association of State Retirement Administrators, resulted
in the actuarial funding levels of public retire-
ment plans plunging to lower levels in fiscal year

2002 compared to fiscal year 2001.11 Specifically,
between the fiscal years 2001 and 2002, the actuarial
value of public retirement systems assets increased
by 3 percent, or $57 billion; in contrast, liabilities
grew by $154 billion or 8.1 percent. Also, the
annual studies released in March 2003 and 2004 by
the Santa Monica, California-based global advisory
company Wilshire Associates confirmed this trend,
indicating that the funding ratio (the ratio of pension
assets-to-liabilities) for all state pension plans
combined declined from 106 percent in 2001, to 91
percent in 2002, to 82 percent in 2003; the median
(50th percentile) state pension plan had a funding
ratio of 79 percent in the March 2004 survey.12
In a further setback to the nations retirement
systems, the Pension Benefit Guaranty Corporation
(PBGC), the federal organization that protects the
pensions of 44.3 million American workers, indicated in January 2004 that it was running a deficit of
$11.2 billion and warned about its ability to protect
private pensions in the future.13 The PBGC, established as a federal corporation in 1974, and funded
by insurance premiums set by Congress and paid by
sponsors of defined benefit plans along with investment and other income, steps in to protect retirees
in underfunded corporate pension plans. Given the
woes experienced by corporate America recently,
the agencys financial burdens have increased
significantly. In 2003, the PBGC assumed responsibility for more than 152 underfunded retirement
plans covering an additional 206,000 workers.
Like the public retirement plans, underfunding
among private pension plans was rampant and
exceeded $350 billion in 2003, the largest figure
ever recorded.14
There are many reservations associated with
the different components of the nations retirement
infrastructure. Between the long-term viability of
the Social Security trust fund, the low personal
savings rate and high household debt levels, the
uncertainties about the financial status of both
public and private pension systems, it is prudent for
policymakers and citizens alike to assess the situation and plot a suitable remedial strategy. When
one factors in the sluggish nature of the current
economic recovery, particularly the anemic levels
of job creation between late 2001 and early 2004,
the urgency for this remedial course becomes even
more relevant.
In this context of the aforementioned brittleness in all three legs of the retirement stool, there
has been a growing level of interest and scrutiny
directed toward the portfolios of state and local
government employee retirement systems by state

policymakers. Some examples of this increasing
scrutiny illustrate the growing importance of this
topic. In Kansas, in February 2004, state leaders
approved the issuance of $500 million in pension
obligation bonds to shore up the public employees
pension system in an attempt to narrow the nearly
$3 billion gap between future pension obligations
and current assets.15 In Maryland, investigations
and pressure from legislators resulted in radical
changes at the State Retirement System. These
changes included the departure of senior executive
staff, including the state treasurer (the titular head
of the system), the indictment of a number of highlevel officials on charges of defrauding the pension
system and the introduction of outside consultants
to improve internal policies and controls.16 In New
York, State Comptroller Alan G. Hevesi, the sole
trustee of the New York State and Local Retirement Systems, indicated in January 2004 that he
would block New York Governor Patakis efforts to
reduce the contributions state and local governments
must make to the Systems.17 (Governor Pataki was
attempting to save $500 million by lowering the
states contributions to the Systems).
In July 2004, California Governor Schwarzeneggers proposal to borrow nearly $1 billion
to cover payments owed public employee pension
funds was termed to be on shaky legal ground by
the state Legislatures chief attorney.18 At the local
level, the city of San Diego faces the prospect of a
bankruptcy filing, largely because of a $1.2 billion
shortfall in its pension fund for municipal workers;
consequently, officials are scrambling to devise
an adequate response to this looming financial
disaster.19 These examples are a sampling of the
actions initiated by state policymakers across the
country in their quest to enhance the financial position of these public retirement systems.
The focus of this report is to provide policymakers with another level of analysis to assist them
in their deliberations as they devise methods to shore
up the retirement systems in their states. In the last
few years, these public retirement funds have been
in the news, sometimes because of their shrinking
asset base and sometimes for other reasons.20 The
importance of payments to beneficiaries from these
state and local government retirement systems is a
given and the onus is on policymakers to ensure
the solvency and financial health of these plans.
Notwithstanding the $2.2 trillion in cash and
investment holdings in these retirement systems at
the end of fiscal year 2002, more than 17.3 million
total members and payments to over 6.2 million
beneficiaries in 2002, there is considerable interest
in ensuring that this component of the U.S. retirement system remains on firm financial ground and
continues to flourish well into the future.21
State and local government employee pension
plans and retirement systems cover the entire
swath of public sector employees, from uniformed
workers to teachers to members of the judiciary to
legions of administrative and managerial positions.
Even though there is a great deal of variety in their
benefits packages, investment policy and administration, given their divergent histories and constituencies, these public sector plans are driven by
similar core values and challenges. In essence, the
administrators of all these plans seek to ensure the
financial stability of the plans, in both the short and
long terms, and to provide retirees with stipulated
benefits by managing the plans assets efficiently
and effectively.
In order to provide an adequate backdrop to
the analysis flowing from the U.S. Department of
Commerce and The Council of State Governments
surveys, this report contains five chapters. Chapter
1 provides a brief history on the origins of public
sector pension plans; highlights the differences
between public and private pension plans; describes
the different types of state and local government
retirement systems; and enumerates basic information
on the administration of these retirement plans.
Chapter 2 expands on some of the themes mentioned
in the introduction, such as the long-term viability
of the Social Security trust fund; the abysmally low
personal savings rate coupled with the high rate of
debt accumulated by American households; and the
financial woes associated with the federal Pension
Benefits Guarantee Corporation, the government
entity charged with rescuing underfunded private
pensions. Chapter 3 documents the multiple
economic challenges confronting states in the past
few years, challenges that have negatively affected
their public pension funds. Chapter 4 presents a
wealth of statistical data and analysis flowing from
the latest federal figures on public sector pension
funds and, finally, Chapter 5 provides more details
on the public sector retirement plans from around
the country, including data contained in The Council
of State Governments survey.
Chapter 1
History and Origins of Public Sector
Retirement Systems
he earliest public sector pension plan was established in New York City in 1857 to provide lumpsum benefits to policemen injured in the line of duty. This plan was amended in 1878 to offer the
retirement payment of one-half of final pay to policemen completing 21 years of service. Even
though a number of state and local entities followed New York Citys example and began providing
retirement payments to their former employees, it was not until the passage of the Social Security Act in 1935
that the growth of public sector pension plans burgeoned across the country. The impetus for this growth
was the fact that the Social Security Act intentionally excluded state and local government employees from
coverage. This was on the constitutional basis that the federal government did not have the right to tax state
and local governments. Hence, a number of state and local jurisdictions pursued retirement plans as a means
of covering their employees in the absence of Social Security payments to their retirees.
In tracing the growth of these plans, it is useful
to divide their development into three distinct time
frames.1
1930-1950: More than half of the nations

largest public sector pension plans were established during this period, providing two-part
retirement payments. The first part was paid
by the employer based on the employees
salary and years of service at retirement, and
the second part was based on annuitizing the
employees accumulated retirement contributions.
1950-1980: In 1950, Congress amended the
Social Security Act to allow states to voluntarily provide Social Security coverage for
their employees after the state entered into an
agreement with the Social Security Administration. Later on, Congress mandated Medicare coverage for state and local employees
hired after March 31, 1986, another measure
intended to boost the retirement incomes of
public employees. Congress decision to
include states under the Social Security Act
initiated a number of changes in state and
local government plan designs. For instance,
for a number of years, many of the state and
local plans joining Social Security offered a
split-benefit formula, with a lower unit benefit
percentage applying to the first $4,200 of final
average salary and a higher unit percentage
applying to the amount over $4,200. ($4,200

represented the Social Security covered earnings ceiling at the time.) However, in the 1980s,
many of these plans dropped this split-benefit
approach and returned to a single-benefit
approach. The 1960s and 1970s witnessed a
growing consolidation among plans with the
larger plans enveloping the smaller ones to take
advantage of economies of scale and improved
technologies.
1980 to the present: A major development

during this period involved the increasingly
significant role played by state legislatures in
expanding the investment options for public
sector pension plans. Beginning in the early
1980s, state legislatures cleared the way for
pension plans to adopt the general standard
of prudence to guide investment decisions in
contrast to the severely restrictive legal list
approach. In the former era, public pension
plans only could invest in certain types of
securities, investigated and approved by the
state legislature. For instance, many legal lists
limited the maximum percent of assets held in
common stock to 30 percent or less. Table 1
provides a quick review of the government
vs. non-government securities split held in
the portfolios of state and local government
employee retirement systems in 1993 and
2002, as enumerated in the federal data.
Government vs. Non-government Securities Split in Public Retirement

System Portfolios 1993 vs. 2002
FY 1993
Type of Security
Dollar Value
FY 2002
% of
Total
Dollar Value
% of
Total
Government
$203,452,928
22%
$225,584,917
10%
Non-government
Corporate Bonds
Corporate Stocks
Mortgages
Funds Held in Trust
Foreign Securities
Other
$571,391,516
$174,446,987
$301,315,623
$19,458,912
$28,682,820
0
$47,487,174
62%
19%
33%
2%
3%
0
5%
$1,649,810,584
$352,193,553
$814,835,143
$20,765,586
$70,422,530
$254,662,228
$136,931,544
76%
16%
38%
1%
3%
12%
6%
table 1
Source: U.S. Department of Commerce, Bureau of Economic Analysis, 1993 and 2002
As indicated in Table 1, after the relaxing

of stipulations regarding these public retirement
systems pursuing investments in non-governmental
instruments there was a marked difference in the
government vs. non-government securities composition. After reaching a 22 percent and 62 percent
split in 1993, the composition shifted to 10 percent
and 76 percent in 2002. Under the new prudence
standard, the pension plans were free to invest a
larger share of their assets in equities, most often
domestic, a trend that enabled a vast majority of
the pension plans to take full advantage of the
tremendous surge in the stock market demonstrated
in the mid- to late-1990s. While the movement to
the prudence standard contributed to solid financial
gains during this period, the steep market drop-off in
the first three years of this decade also resulted in a
shift to a more conservative investment strategy.
Public and Private Sector Pension

Plans: Major Differences
The extension of the retirement period at the

conclusion of the average Americans working life
remains one of the more striking features of the
past century or so. While this development speaks
volumes for the tremendous and much sought-after
advancements in medical technology, it does pose
a fresh set of challenges for public policymakers
at all levels. In response to this trend, the United
States developed a number of government and
private sector pension plans, or long-term financial
contracts, that promise to pay retiring workers a sum
of money to meet their expenses during retirement.
An overview of state and local government
retirement plans requires a description vis-a-vis
their private sector counterparts. Public sector plans
across the United States tend to be of the Defined
Benefit (DB) variety, i.e., retiring vested employees
receive a specified retirement benefit, based on age,
years of service and salary, throughout the duration
of their retirement. In fact, defined benefit plans

are the primary retirement benefit for 90 percent of
the full-time employees of state and local governments.2 It should be noted that until recently, private
corporations also offered these defined benefit plans
to their retirees. These traditional pension plans are
becoming extremely rare in the private sector and in
the past five years, no firm has launched an old-style
pension plan; in fact, a number of companies have
terminated them.3
In these public sector DB plans, required
contributions are computed by actuarial evaluations
while the plans investments are managed by financial experts selected by the public sector entitys
pension board or board of trustees. DB plans are not
pay-go plans, i.e., where inflows match outflows,
but plans where the liabilities are amortized over a
specified period, similar to a mortgage.
On the other hand, in the private sector, a
large number of employees are covered by Defined
Contribution (DC) plans, in which the amount
contributed to the plan is specified even though the
benefit payout is not. Under this system, private
sector plan participants maintain a great deal
of leeway on where to direct their investments,
within certain investment parameters, or options,
pre-selected by the employer. Benefit payouts to
private sector retirees flow from the contributions
and investment income that accrue in participants
accounts. In the event that funds in these accounts
are insufficient to pay benefits for the duration of
retirement, private sector retirees have to rely on
alternate income sources.
About 57 percent of full-time workers in the
private sector are covered by some sort of company
retirement plan, a proportion that has not changed
substantially in recent decades. What has changed
is the type of coverage provided by companies: in
1980, 60 percent of plans were traditional, DB plans.

By 2000, that proportion had slumped to 13 percent
as more and more companies resorted to 401(K) and
DC plans.4 In terms of the public sector, some 43
percent of public workers are unionized and as noted
earlier, 90 percent are participants in fixed-benefit,
DB plans. Meanwhile, in the private sector, where
only about 9 percent are unionized (less than half
the percentage of 20 years ago), the availability of
DB plans has been shrinking as noted above. In
addition, public employees typically collect higher
benefits as a percentage of final pay than do those in
private-sector fixed-benefit plans.5
Cash balance plans and other so-called hybrid
plans are geared toward capturing the advantages
of both DB and DC plans and have emerged as
a strategy for firms to offer pensions often at a
lower cost.6 These cash balance plans work in the
following manner: while the company regularly
allocates money aside for employee retirement,
unlike the popular 401-K retirement plans, the
company, not the employee decides how that money
is invested. In essence, these cash balance plans,
legally classified as DB plans because the employer
owns the assets, makes the investment choices,
bears the direct investment risk and maintains
adequate reserves, as required by law. At retirement,
employees have accumulated a nest egg to draw
down during retirement without the responsibilities
of managing a portfolio of stocks and bonds. Yet,
the employees accrual of pension rights resembles
that of DC plans; hence, the terming of these cash
balance plans as hybrid. A number of private firms
have switched to these cash balance plans in recent
years to economize on their payments to retirees,
including Aetna, Inc. (in 1999), American Express
(1995), AT&T Corporation (1998), Avon Products

(1998), Citigroup, Inc. (1996), Goodyear Tire &
Rubber (1998), IBM (1999) and Owens Corning
(1996).
While the employer contributes to the employees retirement account, typically as a percentage
of current earnings, workers who switch jobs
prior to retirement may withdraw or transfer the
account balance to other tax-sheltered accounts.
The employer also provides a credit based on the
account balance at an interest rate specified in
advance, rather than depending on the performance
of financial markets (like DC plans). The interest
credit rate may change over time at the discretion
of the employer.
As indicated, DC and DB plans differ in
several ways and both the private and public sector
retirement plans in contemporary American society
sometimes incorporate various aspects of these DC
and DB plans. Table 2 provides a comparison of
some of these differences.
There also are major differences in public sector
and private sector plans in the actual implementation
or logistical stages. For instance, most public sector
employees tend to be included in their pension plans
at the point of employment, while private sector
employees generally must meet an age and/or length
of service requirement in order to be eligible for
coverage. It should also be noted that being legally
eligible to receive retirement benefits only occurs
after an employee, either private or public, is vested
in the retirement system. In general, public sector
employees take longer to vest in their retirement
systems (43 percent of public employees have to
Characteristics of Employer Pension Plans

Traditional Defined
Benefit (DB) Plans
Defined Contribution (DC)/

401(k) Plans
Cash Balance Plans
Funding
Employer
Employee and Employer
Employer
Financial Market Risk Borne By
Employer
Employee
Employer
Years of Service
and Final or Highest
Average Pay
Contributions (based on
current wages) and Investment
Returns on those Contributions
Pay Credits (based

on current wages and
interest credits)
How Benefits Are Typically

Paid at Retirement
Annuity
Lump Sum
Annuity or
Lump Sum
Access to Funds for Current

Workers Prior to Retirement
No
Yes (through loans and

hardship withdrawals)
Guaranteed by PBGC
Yes
No
Benefits Determined By
table 2
No
Yes
Source: Gale and Orszag, April 20037
work 10 years before becoming legally entitled to

a benefit) while private sector employees typically
vest after five to seven years of employment.
The federal Employee Retirement Income
Security Act of 1974 (ERISA) requires private
pension plans to provide plan members and the
U.S. Department of Labor with periodic reports
about plan performance and new developments.
Even though the state and local government plans
are not bound by these ERISA requirements, the
plans administrative entities seek to comply with
the financial measurement and reporting mechanisms specified by the Governmental Accounting
and Standards Board (GASB). As a result, public
sector plan participants and other interested parties
and regulatory agencies can review the performance
of these public sector plans against the relevant
GASB standards.
It also is important to note that about one-fourth
of state and local government employees do not
participate in Social Security, opting to channel their
Social Security payroll deductions to their state or
local government retirement plans.8 This trend raises
the importance of the adequacy of their income flows
from the state or local government retirement plan
during retirement given that they will not receive a
monthly check from the Social Security Administration. In fact, 40 percent of teachers in state and
local government plans, including all or mostly all
in California, Connecticut, the District of Columbia,
Florida, Illinois, Kentucky, Maine, Missouri and
Texas do not make Social Security contributions.
Similarly, some 75 percent of public safety workers
and most public employees in Alaska, Colorado,
Louisiana, Massachusetts, Nevada and Ohio do not
make Social Security contributions either.
Even though state and local government plans
tend to be of the DB model, there are several public
sector plans that have adopted the DC model. For
instance, the State Employees Retirement System of
Nebraska, the Teachers Defined Contribution Plan
of West Virginia, and Michigans State Employee
Plan (for workers hired after 1997) have opted for
the DC variety. There also has been interest in
adopting plans that have taken on characteristics of
both the DB and DC plans. In sum, these efforts are
a direct consequence of the changing economic and
political environment in the country and reflect the
desire of plan administrators to cultivate the most
financially viable scenario for their participants.
Types of Public Sector Retirement

Systems
A review of the different public sector retirement systems quickly reveals the tremendous
variations among the numerous plans, including
the level of benefits provided, type of employees
covered, structure of the entity administering the
plan, number of contributing employees, size of the
plans portfolio and investment philosophy driving
the plan. In addition, these variations contribute
toward distinguishing the public sector plans from
those adopted by the private sector. The following
section highlights some of the features of the retirement plans of major public sector professions.
One of the more common variations among
public sector plans is that they cover employees
with radically different employment characteristics. For instance, the physically demanding and
very often dangerous nature of law enforcement
and fire fighting enables these employees to retire
at an earlier age in comparison to other public
sector employees. (These professions also seek a
workforce with an average age that is younger than
other public sector professions; hence, the higher
number of retirees at an earlier age.) Consequently,
the retirement benefits extended are very different
from other public service positions. Typically,
retirement benefit formulas for these professions
are linked to the specific plans vesting requirements. Most plans that require 20 years of service
for vesting purposes operate on benefit formulas that
specify a flat percent of final average salary, most
often 50 percent, to be paid upon retirement. Plans
that allow vesting after five or 10 years calculate
benefits based on formulas derived from single-rate
or variable-rate multipliers for each year of service.
As opposed to the single-rate approach by which the
benefit percentage remains unchanged. In the variable-rate approach, a participant may accumulate a
retirement benefit of a certain percentage for the first
five years of service and another percentage for the
remaining years of service.
In comparison, the retirement benefit formula
for teachers retirement plans usually involves a
single-rate benefit calculation with the same benefit
multiplier applying to all years of service under the
plan. Many teachers pension plans offer an early
retirement option by which employees can retire,
with unreduced benefits, before reaching the specified age and service requirements. Most often, this
option is available after the employee puts in 20
years of service. A large number of the teacher
pension plans add an automatic cost-of-living
adjustment to their benefit payouts to ward off the
negative effects of inflation.
With regard to the general employee retirement

plans, age and service requirements are very similar
to those extended to participants in the teachers
plans. Similar to the teachers plans, single-rate
benefit calculations are used with many systems
offering unreduced retirement benefits at age 55,
with 25 or 30 years of service. Like the teachers
plans, retirement payouts are computed using the
final average salary, typically based on the highest
three or five years of service.
Several interesting developments are apparent
in recent times including the movement away from
the integration of benefits with Social Security, a
trend that is reflected in both the public and private
sector plans. As a result, the U.S. Bureau of Labor
Statistics notes that the proportion of public plans
with a benefit formula linked with Social Security
benefits declined from 10 percent to 4 percent
between 1992 and 1994; for private plans, the
proportion declined from 63 percent to 51 percent
between 1989 and 1995. A plausible explanation
for this trend may be the perceived uncertainty
regarding the solvency of the Social Security Trust
Fund. As noted earlier, one-fourth of state and local
government employees do not participate in Social
Security, opting to channel their Social Security
payroll deductions to their state or local government retirement plans.
Another important development involves the
evolution of Deferred Retirement Option Plans
(DROPs), a development traceable to certain
demographic and economic pressures. This type of
pension benefit, spurned by corporations but often
embraced by state and local governments, has been
hailed as a mechanism to retain hard-to-replace
teachers, engineers and other public workers on the
job as they near retirement.9 In essence, employees
eligible to retire are allowed to continue working
while their retirement benefits are placed in a fund
until they retire for real. However, since DROPs
allow for a very early retirement at high levels of
final wage replacement, high guaranteed rates of
return and lucrative cost-of-living adjustments,
the negative implications on the finances of these
government entities during a fiscal downturn remain
significant. During the booming 1990s, when equity
markets roared forward, these negative developments did not surface but in the current era, when
state finances and public retirement systems remain
under tremendous pressure, these DROP plans are
proving to be immensely costly.
The genesis of DROPs may be traced to a
handful of police officers and firefighters in Baton
Rouge, Louisiana, coming up with the idea (in 1982)
of tapping their pension funds to create individual

escrow accounts before they retired. Their pension
plans, like most traditional ones, paid their benefits
in a flow of checks every month, i.e., an annuity.
These officers, working with an actuary, devised
a system where if they turned down the longevity
raises they were entitled to just prior to retirement, their pension fund could deploy that money
to establish individual accounts. In the current
context, when an employee becomes eligible to
retire, the individual opens an escrow account
and keeps on working at normal pay. While the
employees pension benefit stops growingas if the
employee had retiredthe pension fund forwards
monthly annuity checks to the previously mentioned
escrow account. Not only does this escrow account
accumulate interest, certain government entities
guarantee a specified rate of return on these funds.
When the employee finally retires, the employee is
handed a lump sum, i.e., the proceeds of the escrow
account, and then the employee gets the monthly
pension check, which are based on the benefit level
before the escrow account was created. Very soon,
the concept of DROPs (numerous variations on the
DROP, such as the DRIP, the PLOP, the BACKDROP also surfaced in ensuing years) caught on
more and more with firefighters, police officers and
spread to teachers, judges and many other categories
of public employees. While pension fund officials
assumed that the costs of the sweeteners that were
added onto these plans could be paid for by the eversurging stock market, the downturn in the market
between 2000 and 2002 resulted in these public
pension plans having to absorb enormous costs.
One government entity facing these negative
pressures--the city of Houston-- introduced a very
attractive early retirement plan for city employees
back in the early 1990s. Employees were permitted
to retire at 45 years of age (after completing 25
years of service) with a guarantee of 90 percent of
their final salary. Consequently, 44 percent of the
citys workforce opted for retirement in a five-year
period, forcing the introduction of a DROP plan to
retain some of these employees. The carrot offered
to employees who enrolled in the DROP plan was a
guaranteed 8.5 percent rate of return on their retirement funds that were not drawn, a rate of return
that seemed reasonable at that time but exorbitant
in the current environment of wilting equity markets
and interest rates. In fact, while hundreds of older
workers will qualify for million-dollar payouts
from these accounts, when their monthly pension
checks start arriving, some actually will have higher
incomes than they did when they were working. As
an example, the director of human resources for
the city of Houston (who has 30 years service)
will receive a $1.5 million check from the citys

DROP and then, when he turns 60 in seven years,
will receive monthly pension checks totaling about
$110,000 a year.
To further complicate matters in Houston, the
citys pension fund faced a $1.9 billion shortfall
along with the huge financial burden of the DROP
plans. In response, Houstons voters exercised their
rights to opt out of this guaranteed public employee
pension benefit in a referendum--authorized by the
Texas constitution--that allows cities a single opportunity to withdraw from such guarantees. In fact, the
financial burdens associated with the pension fund
shortfalls and the extremely high payouts associated with the DROP plans resulted in the rejection
of the pension guarantee provision in the May 2004
referendum.
Alongside Houston, the cities of Philadelphia,
San Diego and Milwaukee also face serious financial difficulties in meeting the overall pension obligations as a result of these DROPs. In San Diego,
the generous DROP plan may have contributed to
a $1.2 billion shortfall in the citys pension system,
a shortfall that triggered downgrades in the citys
bond rating and a federal investigation.10
Even at the state level, certain states sought
to refine their retirement benefits. During its 2004
legislative session, lawmakers in South Carolina considered trimming a program the General
Assembly had created in 2000. The Teacher and
Employee Retirement Incentive (TERI) program
in South Carolina allowed employees to continue
working for five years after retiring with their
monthly pension checks being assigned to a special
account; as in the DROPs, employees could access
the funds in these accounts when they finally retire.
House Bill 4888 in South Carolina sought to remove
the earning limitation for a retiree and then eventually phase out the entire program. Yet, there was a
great deal of opposition to this proposal and the bills
author requested that the bill be removed from the
legislative agenda for the year.
Administering Retirement Systems in

the Public Sector
Policymakers continue to play an important

role in the administration of public sector retirement plans for the obvious reason that these funds
involve substantial amounts of public money. In
recent years, the enormous growth of these plans,
both in terms of asset size and participants, has
increased the level of scrutiny as well. In general,
state and local retirement systems are managed by
a retirement board or board of trustees that maintain
responsibility for investment policy and asset allocation. These board members act as fiduciaries and
are required to use their best judgment and prudence
in investment decisions so that the financial viability
of these plans is secured. A survey conducted by
the Florida Retirement System several years ago
indicated that 93 percent of the retirement systems
or funds across the country are governed by such a
board. In addition, 67 percent of these boards retain
authority over investment decisions, 62 percent have
authority over benefits and 85 percent have authority
over actuarial assumptions.11
According to the U.S. Department of
Commerce, in 2002, there were 2,670 public
employee retirement systems or plans in the
United States. Nationally, Pennsylvania (931),
Illinois (371) and Florida (158) were the top three
states in terms of number of plans. Two additional
statesMichigan (142) and Minnesota (146)also
ranked high in this connection. It appears that in
some states, local and state government employees
are consolidated in a few plans while in other states,
there are a large number of plans also serving local
government entities.
As noted earlier, even though public sector
plans are not subject to the standards of the federal
ERISA law, a vast majority of these plans include
language extracted from this federal law in their
guidelines. For instance, public retirement funds
are required to be invested using the prudent person
rule. Specifically, the prudent person rule states
that fiduciaries discharge their investment duties
with the same degree of diligence, care and skill
which a prudent person would ordinarily exercise
under similar circumstances in a like position.12
The daily administration of these plans often is the
responsibility of the retirement systems staff, or of
the government controlling the system, operating
under the supervision of an executive director who,
in turn, reports to the board of trustees.
Chapter 2
Sources of Retirement Income: Social
Security, Private Savings and Corporate
Pension Plans
learly all three figurative legs, i.e., Social Security, personal savings, and public and private
pensions in the nations metaphorical retirement stool face challenges, and policymakers at all
levels of government continue to tussle with adequate policy responses to these challenges. Prior
to delving into a detailed analysis of public retirement plans across the country, including the
results of The Council of State Governments Southern office survey, this chapter performs a quick fiscal
review of the remaining sources (Social Security, private savings, and corporate pension plans) from which
Americas retirees secure their income.
Social Security
The industrialization of the American economy

began in the latter half of the 19th century, transforming the nation into a land of employees increasingly dependent on a flow of money income for their
survival and their families survival.1 During this
economic and social transformation, the federal
and a number of state governments concluded that
some of the inherent risks involved in ensuring this
survival could be mitigated through a social insurance approach to public welfare. Hence, the concept
that social insurance programs based on contributory
financing, available as a matter of right, in contrast
to public assistance programs earmarked only for
those in need, gathered momentum in the early years
of the 20th century. In the initial decades of the last
century, there was movement, both at the federal and
state levels, to provide compensation for workers,
or their survivors, injured or killed in connection
with their jobs. Retirement plans for certain groups
of state and local government employees (mostly
teachers, police officers and fire fighters) emerged
during these early decades. The onset of World War
I also resulted in the federal government providing
benefits and services for persons who served in the
armed forces.
The need for federal action became a vital necessity given that neither states nor local communities
nor private charities had the financial resources to
meet the desperate needs of a vast number of Americans confronting the rigors of the Great Depression
in the late 1920s. Consequently, in 1932, the federal
government delivered loans and then grants to states
to pay for direct relief and work relief to deserving
individuals. Eventually, in August 1935, in response

to President Franklin D. Roosevelts economic security proposals, Congress enacted the Social Security
Act, undoubtedly one of the most important laws in
the history of the nation. 2
Specifically, this law established two social
insurance programs on a national scale designed
to meet the needs of the aged and the unemployed:
a federal system of old-age benefits for retired
workers who had been employed in industry and
commerce, and a federal-state system of unemployment insurance.3 While these benefits first became
available in 1940, two years ahead of schedule,
Congress then expanded the old-age program to
include benefits to dependents of retired workers
and surviving dependents of deceased workers as
well. While there were no major changes in the
program until the 1950s, the ensuing decades saw
various amendments to the program, including the
addition of disability insurance, automatic cost-ofliving increases and computing benefits to ensure
stable replacement rates.
Perhaps the most important piece of legislation enacted under the rubric of the Social Security
Act involved the establishment of the Medicare
program in 1965. This program pays for the
hospital bills of beneficiaries, 65 years and older,
regardless of income. (In 2003, a prescription drug
coverage program also was included in the Medicare program.) Major changes were enacted to the
Social Security program in 1983 when an amendment provided for gradual increases in the age of
eligibility for full retirement benefits from 65 to

67, beginning with persons reaching age 62 in the
year 2000. For certain higher income beneficiaries,
benefits became subject to income tax too.
In terms of its financing, the Social Security
program is primarily a pay-as-you-go system. A
bulk of the payroll taxes collected from todays
workers are deployed to pay benefits to todays
recipients. The ability of the system to continue
meeting its financial obligations has been under
increasing scrutiny in the past two decades, an issue
that has captured the attention of policymakers and
citizens alike. In fact, the unprecedented economic
boom experienced in the country during the 1990s,
when the U.S. economy grew uninterrupted for 10
consecutive years (March 1991 to March 2001),
significantly boosted the Social Security trust funds
bottom line. As a result, the year at which the fund
would start paying out more than it receives was
postponed. Yet, government officials have been
forecasting for some years now that the retirement
insurance and healthcare funds for the elderly, both
financed through payroll taxes, will approach insolvency as more post-World War II baby boomers
approach 65.
According to the latest (2004) annual report of
the Board of Trustees of the Federal Old-Age and
Survivors Insurance and Disability Insurance Trust
Funds, the entity charged with administering the
Social Security trust fund, the following findings
remain important.4
At the end of 2003, 47 million people were

receiving benefits: 33 million retired workers
and their dependents, 7 million survivors of
deceased workers, and 8 million disabled
workers and their dependents. During the year,
an estimated 154 million people had earnings
covered by Social Security and paid payroll
taxes. Total benefits paid in 2003 were $471
billion. Income was $632 billion, and assets
held in special issue U.S. Treasury securities
grew to $1.5 trillion.
The Old-Age and Survivors Insurance (OASI)
and Disability Insurance (DI) trust funds, individually and combined, are adequately financed
over the next 10 years under the intermediate
assumptions. The combined assets of the OASI
and DI trust funds were projected to increase
from $1,531 billion at the beginning of 2004, or
306 percent of annual expenditures, to $3,584
billion at the beginning of 2013, or 442 percent
of annual expenditures in that year. In the 2003
report, combined assets were projected to rise
to 309 percent of annual expenditures at the

beginning of 2004, and 461 percent at the
beginning of 2013.
Under intermediate assumptions, the combined

OASI and DI trust funds are projected to become
exhausted in 2042. For the 75-year projection
period, the actuarial deficit is 1.89 percent of
taxable payroll, 0.03 percentage point smaller
than in last years report. The unfunded obligation for OASDI (both the Old-Age and
Survivors Insurance and Disability Insurance
programs combined) over the 75-year period is
$3.7 trillion in present value, $0.2 trillion more
than the obligation estimated a year ago.
The OASDI annual cost rate is projected

to increase from 11.07 percent of taxable
payroll in 2004, to 16.83 percent in 2030, and
to 19.29 percent in 2078, or to a level that is
5.91 percent of taxable payroll more than the
projected income rate for 2078. Expressed in
relation to the projected gross domestic product
(GDP), OASDI cost is estimated to rise from
the current level of 4.3 percent of GDP to 6.3
percent in 2030 and to 6.6 percent in 2078.
Between about 2010 and 2030, OASDI costs

will increase rapidly due to the retirement of
the large baby-boom generation. After 2030,
increases in life expectancy and relatively low
fertility rates will continue to increase Social
Security system costs, but more slowly. Annual
cost will exceed tax income starting in 2018,
at which time the annual gap will be covered
with cash from redeeming special obligations
of the Treasury, until these assets are exhausted
in 2042. Separately, the DI fund is projected
to be exhausted in 2029 and the OASI fund in
2044.
Under the long-range intermediate assumptions, the combined OASDI trust funds are
projected to become insolvent, i.e., unable
to pay scheduled benefits in full on a timely
basis, when assets are exhausted in 2042. At
that point, payroll taxes and other income will
flow into the fund but will be sufficient to pay
only 73 percent of program costs.5
In the area of demographic challenges

confronting the program, the number of retired
workers is expected to expand rapidly beginning in 2008. This is the year when members
of the post-World War II baby boom begin to
reach early retirement; then, the number of
retired workers will double in less than 30
years. Also, compounding this trend are the

twin facts that Americans are living longer and
that American birth rates are lower compared
to earlier times. Consequently, the ratio of
workers paying Social Security taxes to people
collecting benefits will drop from 3.3 to 1,
currently, to 2.1 to 1 by 2031. Unfortunately,
at that ratio, there will be insufficient workers
to pay scheduled benefits at current tax rates.6
For the trust funds to remain solvent throughout

the 75-year projection period, the combined
payroll tax rate could be increased during the
period in a manner equivalent to an immediate
and permanent increase of 1.89 percentage
points, benefits could be reduced during the
period in a manner equivalent to an immediate and permanent reduction of 12.6 percent,
general revenue transfers equivalent to $3.7
trillion (in present value) could be made during
the period, or some combination of approaches
could be adopted. Significantly larger changes
would be required to maintain solvency beyond
75 years.
Further roiling the retirement plans of senior

Americans was the revelation in late March 2004
that the Medicare program, the other program of
critical assistance to seniors, will be completely
depleted by 2019, seven years sooner than predicted
just last year.7 Without changes in a program that is
rapidly being overrun by skyrocketing health costs,
the trustees annual report notes, raises serious
doubt about the sustainability of Medicare under
current financing arrangements.8
When Federal Reserve Board chairman Alan
Greenspan, in testimony before the U.S. Congress
in February 2004, urged lawmakers to slash future
benefits in Social Security and Medicare, a series of
alarm bells ricocheted through the federal government. Chairman Greenspans recommendation to
push up the age at which beneficiaries could begin
receiving Social Security and Medicare further
underlined the feeble foundation on which a vast
number of Americans continue to build their retirement dreams.
expect this to occur in 2018) and the fact that CBO

projects that the trust funds will become exhausted
in 2052 (the Social Security Trustees expect this to
happen in 2042). These differences spring from
the more optimist economic assumptions made by
CBO in making these long-term predictions. Table
3 documents these differences.
CBOs and the Social Security Trustees
Long-term Economic Assumptions
Social Security
CBO (June
Trustees
2004)
(March 2004)
Real Earnings Growth
1.3%
1.1%
Real Interest Rate
3.3%
3.0%
2.2%
2.8%
5.2%
5.5%
Inflation
Unemployment Rate
table 3
Source: Congressional Budget Office
As depicted in Table 3, there is a slight variation in the long-term assumptions made in the two
reports resulting in the CBO providing a slightly
more optimistic forecast for Social Securitys
future. In conclusion, despite the slight variation in
the numbers, they do point to the same conclusion:
that under current law, the program will generate
a sustained and significant demand for budgetary
resources in the future.10
Personal Savings
Retirement planners are quick to point out that

personal savings should be an important contributor
to the income of retirees. Yet, for nearly three
decades now, the total personal saving rate of U.S.
households has been falling. It should be mentioned
that this trend is not a phenomenon unique to the
baby boomer generation; it is a trend reflective
of American society in general. In fact, there is
research published in the last 10 years demonstrating that the financial behavior of baby boomers
has not been fundamentally different than that of
previous generations.11 Table 4 provides information on personal savings rates for the past 30 years,
1973 to 2003.
In June 2004, the Congressional Budget Office

(CBO) issued a report on the long-term financial
viability of Social Security.9 In general, the conclusions reached in the CBO study mirror those reached
by the Social Security Trustees and described earlier.
Perhaps the most important conclusions reached in
this study include the fact that annual outlays for
Social Security are projected to exceed revenues
beginning in 2019 (the Social Security Trustees
Personal Savings Rate and Disposable Income

(Billions of Dollars) 1973-2003
Year
Disposable
Personal
Income
Personal
Savings
Percent
1973
$978.3
$102.7
10.5
1978
$1,608.3
$142.5
8.9
1983
$2,608.4
$233.6
9.0
1988
$3,748.7
$272.9
7.3
1993
$4,911.9
$284.0
5.8
1998
$6,395.9
$276.8
4.3
2003
$8,202.9
$165.6
2.0
table 4
Source: U.S. Department of Commerce, Bureau of

Economic Analysis
As indicated in Table 4, during the past 30

years, savings as a proportion of disposable income
has declined steadily. For the period represented,
from a high of 10.5 percent of disposable income
in 1973, this proportion declined to 7.3 percent by
1988, and to a mere 2 percent by 2003. Of note, the
savings rate reached a high of 11.2 percent in 1982
and a low of 1.7 percent in 2001, the two bookends of this statistic for the time period reviewed.
Figure 1 further illustrates this trend by graphically
presenting personal savings as a percent of disposable personal income for the period 1973 through
2003.
Even though the baby boomers, people born

between 1946 and 1964, comprise one of the largest
and most affluent generations in American history,
there is concern that a cohort within these boomers
has not accumulated sufficient private savings to
fully finance their retirement.12 Even though these
baby boomers are on track to secure higher income
levels than their parents, it is estimated that a quarter
of these households have failed to accumulate
significant savings to last them through retirement.
Another factor affecting the ability of Americans to draw on their personal savings during retirement is the crushing level of debt accumulated in
recent years. According to the Federal Reserve
Board, total consumer credit at the end of 2003
amounted to a staggering $2 trillion, up from $1.5
trillion, a scant four years before that in 1999. Total
consumer credit, including both the revolving and
non-revolving varieties, to such entities as commercial banks, finance companies, credit unions,
savings institutions, non-financial businesses and
pools of securitized assets, rose from $1.5 trillion
in 1999, to $1.7 trillion in 2000, to $1.8 trillion in
2001, to $1.9 trillion in 2002 before topping off at
the aforementioned $2 trillion last year.
For many Americans, the last few years
signaled the onset of a huge borrowing spurt as
they accumulated debt to purchase new homes,
computers, cars, other big-ticket items and refur-
Personal Savings Rate as a Percent of Disposable Income 1973-2003
Source: U.S. Department of Commerce, Bureau of Economic Analysis

figure 1
bish their homes with home equity lines. In addition, given the fact that in the aftermath of the 2001
recession millions of Americans lost their jobs, an
increasing number of them used credit cards to pay
for essential expenditures during this time of unemployment. Furthermore, by spring 2004, long-term
unemployment was the worst it had been in more
than 20 years--22.1 percent of all unemployed
workers were out of work for six months or more
in 2003--the worst annual rate since 1983,13 and as
a result, an increasing number of families have had
no recourse but to accumulate greater levels of debt
in order to stave off bill collectors and meet basic
expenses.
Yet this accumulation of debt has resulted in
a robust rate of consumer spending, often touted
as the mainstay of the economy in recent years,
particularly in the aftermath of the 2001 recession.
Consumer spending expanded at a 4 percent annual
rate in the final quarter of 2003, after spurting ahead
at an 8.2 percent annual rate in the third quarter of
2003. However, this borrowing binge has resulted
in household debt reaching nearly 83 percent of
gross domestic product (GDP), up from 70 percent
in 1999.14 Alongside the accumulation of this
colossal level of debt, another disconcerting fact
concerns the possible implications to consumers
when interest rates rise from their historically low
current levels, particularly for those consumers
locked into variable rates.
Notwithstanding the declining personal savings
rate and the overwhelming increase in household
debt, a related trend should be mentioned here:
the increase in home ownership statistics. Data
show that in recent decades, an increasing number
of Americans have devoted resources to purchase
their own homes. Hence, an argument could be
extended that even though, in general, American
households are saving a smaller proportion of their
disposable income, the increase in home ownership
rates partially offsets these shrinking savings efforts.
The diversion of disposable income to pay down
mortgages could be construed as a form of savings;
undoubtedly, the purchase of a home for most
American households amounts to the purchase of
their largest asset. So, even though American households allocated diminishing amounts of disposable
income toward personal savings, the fact that there
was a marginal increase in home ownership rates
in the past several decades remained a positive
development. As demonstrated in Table 5, national
homeownership rates remain at an all-time high,
currently up from 62.1 percent of all households in
1960 to 68.3 percent in 2003, some 43 years later.
Homeownership Rates as a Percent

of Total Households 1960-2003
Year
Percent
Year
Percent
1960
62.1
1990
63.9
1965
63.3
1995
64.7
1970
64.2
2000
67.4
1975
64.6
2001
67.8
1980
65.6
2002
67.9
1985
63.9
2003
68.3
table 5
Source: U.S. Department of Commerce, Bureau of the

Census
As displayed in Table 5, reforms related to

the mortgage application process and the record
low interest rates experienced in the past few years
have propelled an increasing number of Americans
to purchase homes. This has enabled a stunning
number of American households to take that allimportant step of owning their own homes. An
important corollary in this impressive expansion in
the number of American homeowners involves the
record low mortgage rates prevalent in recent years,
the lowest in more than four decades, and the flexibility and ease at which prospective home buyers
may apply and qualify for a mortgage.
Corporate Pension Plans
The announcement in 2004 from the executive

director of the Pension Benefit Guaranty Corporations (PBGC), the federal entity that protects the
pensions of 44 million American workers, that while
his agency has sufficient assets to pay benefits to
workers and retirees for a number of years, the
growing gap between our assets and liabilities puts
at risk the agencys ability to continue to protect
pensions in the future,15 only confirmed what a
growing number of analysts had been stating for
the prior few years. This gloomy outlook was only
corroborated when the PBGC assumed trusteeship of the Bethlehem Steel pension plan in 2003,
absorbing not only the largest single plan (95,000
participants) in its history up to that point but also
the largest loss from one company (about $3.6
billion).16 For the rest of 2004, the outlook does
not appear any cheerier, a development confirmed
in Congressional testimony in October 2004 by the
PBGCs executive director who noted that we will
be reporting a significantly increased deficit for the
2004 fiscal year.17
For the past three years or so, certain analysts
have been drawing attention to the fact that Americas corporate pension system was a ticking time
bomb with the potential to explode like the savingsStresses in the System, page 15
and-loan crisis of the 1980s.18 The nations aging

workforce and the decimation of the stock markets
in the 2000 through 2002 period created a massive
underfunding of corporate pension funds. These
analysts had been drawing attention to the fact that
if policymakers, primarily at the federal level, did
not initiate corrective action, the PBGC, in its role
as the insurer for these corporate pension plans,
would be forced to meet the defined benefit obligations of millions of retirees. In mid-2003, the level
of underfunding at these corporate plans (defined
benefit) was estimated to be in the $300 billion
range19 and by late February 2004, it was estimated
that employers would need to add $350 billion to
pension funds.20 In mid-August 2004, Standard &
Poors announced in its latest Pension Status Report
that while improving from the prior few years, at
year-end 2003, the overall position of the 362 S&P
500 companies offering defined benefit pensions
improved from an underfunded level of $219
billion at year-end 2002 to an underfunded level
of $165 billion. For year-end 2004, Standard &
Poors estimates that the level of underfunding will
improve but still record a shortfall of $112 billion.
Nevertheless, the current level of underfunding is
a far cry from the $280 billion surplus recorded at
year-end 1999 for the 362 companies in the Pension
Status Report.21
Undoubtedly, the combination of problems
ailing the Social Security and Medicare systems,
along with the fiscal problems of numerous corporate pension plans, coalesced to create a veritable
witches brew of nettlesome issues for policymakers.
Once again, a familiar list of structural culprits
continues to plague the underfunded pension plans
in corporate America today. The same inter-generational conflict that confronts the Social Security
and Medicare programs presently remains the most
important factor here: the proportion of workers to
retirees has been dropping in recent decades. For
instance, in 1985, there were about three workers
for every retiree in pensions insured by the PBGC;
in mid-2003, this ratio was in balance, and it is estimated that by 2006, beneficiaries are expected to
outnumber workers by nearly 12 percent. Another
example from General Motors further illustrates this
point. At the end of 2002, General Motors already
had substantially fewer U.S. workers (177,000) than
retirees (437,000), a startling ratio differential.22
Other demographic trends play a role too, such
as the fact that Americans are living longer in retirement as a result of earlier retirement and longer life
spans. According to the PBGC, an average male
worker spends 18.1 years in retirement compared
to 11.5 percent in 1950; consequently, an additional
seven years of retirement must be funded with a

diminishing pool of workers.23 Rising healthcare
costs in America, often at staggering double-digit
annual growth rates, are a trend that has been extensively documented, a development that erodes the
resources of both private and public pension plans.
As mentioned earlier, since Americans are now
living much longer, their healthcare needs also
increase exponentially, a trend that further taps into
these pension funds.
Another major structural impediment to the
funding levels of corporate pension plans relates
to the steep, concurrent drops in both equity values
and interest rates. Companies with these defined
benefit plans invest in stocks and bonds to ensure
a flow of income to meet future retiree payments,
factoring in such criteria as workers salaries, age
and life expectancy. Using actuarial calculations,
among other techniques, assumptions are then
made about the earning potential of these instruments. As is often the case, these investment earnings can deviate from the initial assumptions and
the corporate pension funds are either underfunded
or overfunded. During the booming equity market
scenario of the mid-to-late 1990s, a majority of these
defined benefit corporate pension plans were flush;
that scenario changed radically during the next few
years, particularly in the precipitous collapse of the
equity markets between 2000 and 2002.
A report, released by Wilshire Associates in
May 2003 on the defined benefit plans of S & P
500 companies, documented this alarming trend.24
Accordingly, 2002 was the worst year ever for these
corporate pension plans with their assets falling
by $106 billion to $892 billion, while liabilities
increased by $105 billion to $1,069 billion. As a
result, the funding ratio (assets divided by liabilities)
for all plans combined dropped from 104 percent to
83 percent; a $34 billion surplus at the beginning of
the year was transformed into a $177 billion deficit
by the end of the year. In addition, the report noted
that 89 percent of corporate pension plans were
underfunded with the median (50th percentile) dropping to 78 percent, down from 93 percent exactly a
year before.
While the drastic collapse of the equity market
(and interest rates) saw the asset holdings of these
corporate pension plans evaporate rapidly, analysts
now are raising questions regarding the specific
investments made by these pension plans. For
instance, United Airlines, which announced in
August 2004 that it would likely terminate and
replace its employee pension plans to cut costs,
invested a larger-than-than-average share of its
$6.6 billion pension portfolio in illiquid investments, while also investing liberally in junk
bonds, technology and pharmaceutical start-ups,
even a gold mining company in Ghana.25 While
such investments were not out of the ordinary for
any number of other corporate pension funds that
experienced precipitous shortfalls in the 2000-2002
bear market, the difference was this downturn
coincided with the airlines own business troubles.
While certain companies that experienced losses
during the 2000-2002 period were able to re-direct
some new monies into their pension plans in the
post-2002 period, United Airlines parent company
is in bankruptcy and was not in a position to replace
the pension assets lost in the stock market downturn.
Even the stock market rebounding in 2003 did not
alleviate United Airlines beleaguered pension plan;
at the end of 2003, while United Airlines pension
plan had $6.9 billion in assets, this still was a mere
53 percent needed to pay its $13.1 billion of obligations to retirees.
Another structural problem confronting
corporate pension plans deals with the weaknesses
in current funding rules.26 In particular, the PBGC
notes that the low limits set for funding targets
remains a major impediment to the financial health
of these plans. According to current law, employers
can stop making contributions when a pension plan
reaches 90 percent of current liability. Unfortunately, current liability does not reflect the plans
termination liability, which is the total cost of
providing annuities as fixed by group annuity
prices in the private market. In addition, there is
relatively little consequence to acting irresponsibly
and not funding pension promises.27 Bethlehem
Steel presented a claim of $3.7 billion after paying
a little over $60 million in premiums. In fact, while
Bethlehem Steel reported that its pension plan was
84 percent funded on a current liability basis even
though it was only 45 percent funded on a termination basis. Similarly, even though United Airlines
credit rating hovered in junk bond territory for some
time and its pensions were underfunded by more
than $5 billion on a termination basis since 2000,
the airline paid a mere $50 million in premiums to
the PBGC. Unfortunately, the termination of United
Airlines plans will result in a loss to the fund of
more than $6 billion. Both these pension plans were
trusteed by the PBGC in 2003.
When the PBGC assumes responsibility for a

terminated corporate pension plan, it is referred to as
having been trusteed.
The funding rules often permitted contribution holidays even for seriously underfunded plans.
The example cited here is US Airways not making
a single cash contribution to its pension plan for
pilots for four years prior to termination. When
US Airways announced in September 2004 that
it was suspending contributions to pension plans
for all employees, its pension plan already was
underfunded by an estimated $2.3 billion, almost
all of which was ($2.1 billion) guaranteed by the
PBGC.28
The announcement by United Airlines in
July 2004 that it would no longer contribute to its
pension plans and the tottering financial condition of
the PBGC raised the specter of the federal government having to lead another multibillion-dollar
taxpayer bailout akin to the bailout of the savings
and loans industry in the 1980s.29 United Airlines,
like so many of its companions in the airline
industry, is striving to improve its cash position
by attracting lenders and investors while radically
slashing costs. Hence, United Airlines efforts to
cast off most or some of its more than $13 billion in
pension obligations will be a major step in enhancing
its cash position. If United Airlines succeeds in its
efforts, a number of other airlines might be tempted
to adopt this strategy and if every airline with a
traditional pension plan were to default, the federal
government is estimated to be left with an expense
approaching $31 billion. Mirroring United Airlines
actions, in mid-September 2004, US Airways, the
nations seventh largest airline, alongside filing for
bankruptcy reorganization, announced that it would
forgo a $110 million payment owed to its employee
pension plan.30
Another structural problem ailing these corporate pension plans involves reforms necessary to
improve the accuracy and transparency of pension
information. About three years ago, corporate
America faced a spate of serious scandals. The
impact of these scandals continues to affect investor
confidence, engulf big and small companies across
a number of sectors, erode the markets and severely
damage Americas economic image across the
globe. Beginning with Enron, once the nations
largest energy trader, these corporate scandals
soon overwhelmed Adelphia Communications,
Arthur Andersen, Bristol-Myers Squibb, Computer
Associates, Dynergy, Global Crossing, Halliburton,
ImClone Systems, Merrill Lynch, Qwest Communications, Tyco International, WorldCom and Xerox,
among others. While some of these companies
survived, a number of them were forced into
bankruptcy and even liquidation. The unfortunate
consequence of these corporate failures was that the
thousands of employees with their life savings and

future retirement income tied up in the stock of the
companies now face a positively bleak future. In
addition, public sector retirement systems that had
invested in these companies also faced significant
losses prompting a spate of calls for reforms in the
manner in which these retirement funds implement
their investments.
A few examples from around the country help
illustrate this point. Georgias retirees lost a sizable
$122 million after the collapse of Enron Corporation, with the state Teachers Retirement System
losing $79 million and the State Employees Fund
losing $43 million.31 Critics contended at that time
that Georgia could have avoided some of those
losses, second only to much larger pension plans
in Florida and California, if the state had emergency triggers (stop loss strategies) in place to
sell plummeting stocks. In North Carolina, State
Treasurer Richard Moore has been demanding that
mutual funds and others handling the tens of billions
of dollars in state retirement money provide better
disclosure of fees and place limits on trading by their
employees.32 As indicated by the treasurer, funds
that do not adopt the guidelines laid out risk losing
the states business. Similarly, current and former
employees of Enron, Lucent Technologies, IKON
Office Solutions, Nortel Networks and Providian
Financial have filed suites alleging breach of fiduciary duty in their corporate retirement plans; all of
the suits center on losses in company stock.33
In a similar vein, the officers of state pension
funds have been much more vocal in expressing
their concerns about the management practices of
the corporations their funds have invested in. State
pension funds are widely attributed to have been
pivotal in the decision to oust the former head of the
New York Stock Exchange over his compensation
package in September 2003.34 Since then, these state
retirement fund executives have continued to voice
their disapproval over bloated executive compensation packages and conflict of interest among
corporate board of directors. In early March 2004,
a group of pension fund executives indicated that
they would withhold a vote to re-elect Michael D.
Eisner, then Chairman and Chief Executive Officer
of the Walt Disney Company, and other company
executives, including members of Disneys audit
committee. Given that these funds cumulatively
hold millions of Disney shares, the criticisms of the
state pension fund executives rang clear with other
shareholders.35 Then, a few weeks later, galvanized
by their efforts with Disney, a number of state officials began a campaign urging other shareholders of
Safeway, the supermarket chain, to withhold their
votes for the current chairman and chief executive officer and two directors.36 In particular, the
California Public Employees Retirement System
(CalPers) said it would withhold its vote for these
Safeway board members.37 The public pension
fund officials contend that conflicts of interest in the
Safeway boardroom have prevented the directors
from representing shareholder interests adequately;
these officials also cited the $20 billion drop in total
market value over the last five years. Once again,
these pension funds cumulatively control millions of
Safeways outstanding shares; for instance, CalPers
holds 2.7 million Safeway shares.
The financial woes surrounding both the PBGC
and corporations have resulted in a range of costcutting efforts, including reducing monthly pension
payments and requiring retirees to assume a greater
share of their healthcare costs. In late 2003, some
former Bethlehem Steel retirees discovered to their
dismay that the PBGC would require repayment for
some of the benefits promised by Bethlehem Steel.
One such retiree in the Baltimore, Maryland area
was required to pay back $14,000 from what he had
received from the agency; similarly, another retiree
found his monthly pension payments slashed from
$2,237 to $1,717.38 In Los Angeles, California, a
retiree receiving an AT&T pension was notified
in December 2003 that the company-paid health
insurance benefits guaranteed to him and his wife
were being canceled. In order to receive continued
health coverage, he would have to pay $411 a
month, an expense that would greatly deplete his
$1,457 monthly pension.39 Even retirees in senior
management have not been immune to these
pension reductions; a trucking executive who had
worked for Consolidated Freightways for 36 years
with a pension of $151,000 saw his pension drop
by $22,000 and his health insurance costs soar to
$9,000. Then, a retiree who had worked for Acme
Steel for 31 years with a pension of $22,000 a year
was notified that his wifes health insurance had
been terminated.40
Benefit reductions are a trend sweeping across
the country as corporations seek to lower their
expenditures by reducing the level of benefits
provided to their retirees. In fact, according to a
Hewitt Associates study, despite the resurgent stock
market in 2003 (compared to the 2000 to 2002
period), more than one third of U.S. companies
with a pension plan have indicated in January 2004
that they plan to freeze benefits; 17 percent of the
companies surveyed also indicated they will halt
benefits to new employees.41
In April 2004, President Bush signed legislation (PL 108-218), submitted to him after a laborious
debate in Congress, granting companies a two-year
break on contributing to their pension plans.42 (As
noted earlier, a number of companies had ceased
making these contributions well before the passage
of this legislation.) According to this new law, set
to expire on December 31, 2005, companies were
permitted to base their contributions on a higher
future rate of returna rate linked to the yield of
corporate bonds rather than U.S. Treasury bonds.
In the lead-up to the legislation, corporations had
bemoaned the fact that without the billions of dollars
in savings expected from the law, several pension
plans would collapse.
In sum, the PBGC and defined benefit corporate pension plans face significant problems in the
upcoming years, given the multi-tiered structural
problems listed in this section. The long list of
underfunded pension plans in these companies,
especially in the air transportation and steel sectors,
could produce additional losses for both retirees and
the PBGC. Hence, the onus is on policymakers to
respond to these challenges and seek to mitigate the
negative effects of these trends. In this vein, the
executive director of the PBGC called on Congress
to make it harder for corporations to dump their
obligations on taxpayers and said his agency
needs a stronger claim on the assets of companies
that skip payments.43
Chapter 3
Economic and Fiscal Variables Influencing
Public Sector Retirement Systems
his section of the report provides a backdrop on the economic and fiscal developments that
pummeled both the national and state economies in the first few years of this decade. These
developments had a direct impact on public sector retirement systems and led to a sharp decline
in their financial health. The section reviews some of the broader national economic trends (sputtering gross domestic product growth; rising unemployment levels; sagging consumer confidence levels;
escalating oil prices; drooping interest rates; and faltering equity markets) and explores how these economic
developments had huge negative impacts on state finances (plunging revenue levels; increasing unemployment rates and rising budget shortfalls). Cumulatively, these negative features created significant financial
problems for public sector retirement systems.
After a decade of sustained growth, unsurpassed in the economic history of the country, March
1991 to March 2001, the U.S. economy began
grinding to a halt in mid-2001. Then, the tragic
events of September 11, 2001, pushed the already
tottering economy into recession. While technically
the economy emerged from this recession after two
quarters, the pace at which the economy generated
jobs during its recovery phase, even three years after
the official end of the recession, continues to be
extremely sluggish.
During the aforementioned decade of expansion, the U.S. economy was characterized by an
unparalleled level of prosperity that facilitated
soaring personal incomes and corporate profits;
dwindling unemployment, low inflation and rapid
economic growth; rising revenue flows leading
to budget surpluses at the federal, state and local
levels; and a booming stock market that elevated
the investment portfolios of a number of American
households to remarkable levels. The national and
individual state economies grew considerably faster
than most forecasters predicted, resulting in a bountiful fiscal environment at every level of government.
At the state level, revenue flew into state coffers
from growing capital gain taxes, income and other
taxes boosted by taxpayers healthy stock market
gains, base salaries and overtime checks. Sales
tax inflows grew steadily too, as consumers pared
back on savings and consumed at ever increasing
levels. Furthermore, state spending pressures were
mild; for instance, Medicaid enrollments declined
while the federal decision to switch welfare funding

from an entitlement to a block grant generated cash
inflows for states. The $246 billion state tobacco
settlement was another factor in pushing state
budgets toward healthy surpluses. Consequently,
states were able to cut taxes, hike spending in such
areas as healthcare and education, and boost reserve
or rainy day funds.
Unfortunately, the economic boom years of the
1990s ended with the 2001 recession and federal,
state and local governments continue to wrestle with
the lingering effects of this latest economic recession. Even though the economic outlook at both
the federal and state levels currently remains more
optimistic, the grim economic news that percolated
throughout the country between mid-2001 and
early 2004 seriously challenged policymakers at
every level. The following sections contrast several
pieces of key economic information to highlight the
peaks and valleys demonstrated in the U.S. economy
during the 1990s and the early part of this decade.
These economic highs and lows etched an indelible
mark on the finances of the nations public retirement systems.
GDP Growth
Changes in the growth of our gross domestic

product (GDP), the total output of goods and services
produced in the country, remain a critical ingredient
in assessing economic trends. On November 26,
2001, the Business Cycle Dating Committee of the
National Bureau of Economic Research (NBER),
the arbiter of key economic events in the nation,

announced that business activity in the U.S. economy
peaked in March 2001. While a peak marks the end
of an expansion and the beginning of a recession, the
NBER defines a recession as a significant decline
in activity spread across the economy, lasting more
than a few months, visible in industrial production,
employment, real income, and wholesale-retail
trade.1 As indicated earlier, the business peak
reached by the economy in March 2001 signaled
the end of the decade-long economic expansion, the
longest in the nations history. Table 6 provides a
glimpse into the nations GDP with a breakdown of
the annual percent change between 1993 and 2003
alongside details on other related economic indicators (personal consumption expenditures; gross
private domestic investment; net exports of goods
and services; and government consumption expenditures and gross investment).
As indicated in Table 6, year-to-year GDP

growth between 1993 and 2003 remained in positive territory, a strong testament to the resiliency
of the U.S. economy during some very challenging
times in this period. In four of the years, GDP
growth was at least 4 percent, with the high of 4.5
percent achieved in both 1997 and 1999. In 2001,
the year of the recession, growth slumped to a scant
0.5 percent and then bounced back to 2.2 percent
and 3.1 percent, respectively, in 2002 and 2003.
Personal consumption expenditures, after steadily
rising in the 1990s, peaked at 5.1 percent in 1999
and then tailed off in the next four years. Gross
private domestic investment remained vibrant in
the 1990s, reaching a high of 12.4 percent in 1997,
before declining to -8.4 percent in 2001, and then
-1.2 percent in 2002. In terms of net exports and
imports (goods and services), resounding doubledigit growth levels were accomplished several times
Percent Change From Preceding Period in Real GDP and Other Key Economic Indicators 1993 to 2003
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Gross Domestic Product (GDP)
2.7
4.0
2.5
3.7
4.5
4.2
4.5
3.7
0.5
2.2
3.1
Personal Consumption Expenditures
3.3
3.7
2.7
3.4
3.8
5.0
5.1
4.7
2.5
3.4
3.1
Durable Goods
7.8
8.4
4.4
7.8
8.6
11.3
11.7
7.3
4.1
6.5
7.4
Nondurable Goods
2.7
3.5
2.2
2.6
2.7
4.0
4.6
3.8
1.9
3.0
3.8
Services
2.8
2.9
2.6
2.9
3.3
4.2
4.0
4.5
2.4
3.0
2.0
8.9
13.6
3.1
8.9
12.4
9.8
7.8
5.7
-8.4
-1.2
4.2
Fixed Investment
8.6
9.3
6.5
9.0
9.2
10.2
8.3
6.5
-3.2
-3.7
4.4
Nonresidential
8.7
9.2
10.5
9.3
12.1
11.1
9.2
8.7
-4.5
-7.2
3.0
Structures
-0.7
1.8
6.4
5.6
7.3
5.1
-0.4
6.8
-2.5
-18.4
-4.6
Equipment and Software
12.5
11.9
12.0
10.6
13.8
13.3
12.7
9.4
-5.2
-2.8
5.5
8.2
9.6
-3.2
8.0
1.9
7.6
6.0
0.8
0.4
4.9
7.5
3.2
8.7
10.1
8.4
11.9
2.4
4.3
8.7
-5.2
-2.4
2.0
Goods
3.3
9.7
11.7
8.8
14.3
2.2
3.8
11.2
-6.1
-4.0
1.9
Services
3.2
6.3
6.3
7.2
5.9
2.9
5.6
2.9
-3.1
1.4
2.3
8.8
11.9
8.0
8.7
13.6
11.6
11.5
13.1
-2.6
3.3
4.0
10.1
13.3
9.0
9.3
14.4
11.7
12.4
13.5
-3.2
3.7
4.8
2.9
5.7
3.3
5.5
9.4
11.4
6.9
11.1
0.4
1.4
-0.1
Gross Private Domestic Investment
Residential
Net Exports of Goods and Services
Exports
Imports
Goods
Services
Government Consumption
Expenditures and Gross Investment
-0.9
0.5
1.0
1.9
1.9
3.9
2.1
2.8
3.8
3.3
-4.2
-3.7
-2.7
-1.2
-1.0
-1.1
2.2
0.9
3.7
7.9
8.7
National defense
-5.6
-4.9
-3.8
-1.4
-2.8
-2.1
1.9
-0.5
3.9
8.9
10.6
Non-defense
-0.7
-1.2
-0.4
-0.7
2.6
0.7
2.8
3.5
3.5
6.2
5.3
State and local
1.4
2.6
2.6
2.3
3.6
3.6
4.7
2.7
2.2
1.8
0.5
Federal
table 6
in the 1990s before receding into negative territory

in 2001. Finally, government consumption expenditures and gross investment grew in miniscule terms
in the early years of the 1990s before climbing to
2.8 percent, 3.8 percent and 3.3 percent in the 2001
to 2003 periods.
Unemployment Trends
The nations unemployment rate is an important measure of its economic performance and
another indicator that has far-reaching implications
on federal, state and local government finances.
Figure 2 provides a graphical demonstration of this
measure between 1993 and 2003.
ment was all the more noteworthy in the context

of the low inflation rates that prevailed during this
period. Then, in 2001, with the onset of the recession, companies began mass layoffs and the national
unemployment rate began climbing up. It reached
4.7 percent in 2001, followed by 5.8 percent in 2002,
and then 6 percent in 2003. In October 2004, the
national unemployment rate stood at 5.5 percent.
As documented in Figure 2, after cresting at

6.9 percent in 1993in the aftermath of the 1991
recessionthe nations unemployment rate began
a steady downward trek before reaching an extraordinary 4 percent in 2000. In fact, the job growth
numbers achieved during most of the 1990s was truly
impressive: there were 23 months where 300,000 or
more new jobs were created and, in March 2000, the
economy added 493,000. This remarkable achieve-
National Unemployment Levels 1993 to 2003

Year
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Unemployment Level
8,940,000
7,996,000
7,404,000
7,236,000
6,739,000
6,210,000
5,880,000
5,692,000
6,801,000
8,378,000
8,774,000
table 7
National Unemployment Rate 1993 to 2003
figure 2
Source: U.S. Department of Labor, Bureau of Labor Statistics
The actual number of unemployed Americans

is another important statistic and Table 7 documents
this information for the period 1993 to 2003. Once
again, the two book-end years (1993 and 2003)
involve the highest unemployment levels (8.9
million and 8.8 million, respectively) for the review
period. The 5.7 million level reached in 2000 was
the lowest for the same period.
Even though there were sizable output increases
in both 2002 and 2003, the nations unemployment
rate remained stubbornly high as corporations
looked to productivity gains to enhance their profit
margins. It was only in the spring of 2004 that
hiring levels began picking up, and in the first six
months of 2004, the economy created 1.2 million
new jobs.2 However, a disturbing trend that has
been discerned during this period involves the high
number of Americans that have dropped out of the
job hunt; in fact, reports indicate that during the first
six months of 2004, approximately 265,000 people
dropped out of the job hunt and joined some 19.1
million unemployed Americans. The latter figure, at
a record level, is up 44 percent from 10 years ago.
Federal Budget
The federal budget plays a monumental role

in the state of the U.S. economy and by extension
in the fiscal situations of all state and local governments.3 The size of the federal budget surplus
or deficit reflects temporary factors, such as the
effects of the business cycle or of one-time shifts
in the timing of federal spending and tax receipts,
as well as the longer-lasting impact of factors such
as tax and spending legislation and changes in the
growth rate of the economy. While a fiscal deficit
in the short-term boosts economic activity at home
and abroad via a demand-side effect, the so-called
short run fiscal multiplier, in the medium term,
such an imbalance either reduces private consumption (because higher private savings are needed to
make up for public dissaving) or lowers private
investment, or both, through a mechanism called
crowding out. The eventual cost of this development is lower productivity growth and income.
Then, lower productivity growth and income
impacts negatively on state economies and, by
extension, on the pension funds maintained by state
and local governments.
Table 8 demonstrates the total federal budget
surplus or deficit between 1990 and 2005 (with estimates for the last two years) alongside this figure as
a percentage of GDP.
Federal Budget Deficit/Surplus as a Percent of

GDP 1990 to 2005
Year
Surplus/Deficit
Percent of
(Billions of Dollars)
GDP
1990
$-221
-3.9
1991
$-269
-4.4
1992
$-290
-4.5
1993
$-255
-3.8
1994
$-203
-2.9
1995
$-164
-2.2
1996
$-107
-1.4
1997
$-22
-0.3
1998
$69
0.8
1999
$126
1.4
2000
$236
2.5
2001
$127
1.3
2002
$-158
-1.5
2003
$-375
-3.4
2004
$-422
-3.6
2005
$-353
-2.8
table 8
Source: Congressional Budget Office, May and

September 2004
As documented in Table 8, after reaching a

high of $290 billion in 1992, the highest level in
40 years, the federal budget deficit began declining
steadily thereafter. The surplus began in 1998,
peaked at $236 billion in FY 2000 and slipped to
$127 billion in FY 2001. Then, after running budget
surpluses for four years in a row (1998 through
2001), the most dramatic drop in tax revenue since
1946, along with several other contributory factors,
propelled the federal government into a deficit in
2002. While this deficit scenario continued in 2003
($375 billion), it is expected to continue for at least
the next decade. As the CBO noted in March 2004,
after analyzing the presidents budget submission
for fiscal year 2005,
. . . the deficit under the presidents budgetary
proposals would be $478 billion in fiscal year
2004 and $358 billion in 2005. As a share
of the economy, the deficit would total 4.2
percent of gross domestic product (GDP) this
year, then fall to 3.0 percent next year. Under
the presidents policies, the deficit would
decline further--to 2.1 percent of GDP--in
2006 and then remain between 1.6 percent
and 1.8 percent of GDP through 2014. Those
figures do not include possible future costs for
ongoing operations in Iraq and Afghanistan,
which the administration did not include in its
budget for 2005 and subsequent years.4
Over the next decade, the CBO estimates

that deficit totals could reach at least $-1.4 trillion
between 2005 and 2009 and an even more overwhelming $-2.7 trillion between 2005 and 2014. In
contrast to the $5.6 trillion surplus forecast between
fiscal years 2002 and 2011 by the CBO in 2001,
the deficit forecasted for the coming decade further
complicates the task of policymakers embarking on
a range of projects. The CBO revised its deficit estimates for 2004 and 2005 in September 2004 (from
those made in May 2004) to $-422 billion (down
from $477 billion) and $-353 billion (down from
$363 billion).
In terms of the deficit as a percentage of GDP,
in the 15 years represented, the highest level reached
was -4.9 percent in 1992; this number dwindled to
-0.3 percent in 1997 before turning positive for the
next four years. Then, the percentage began its
ascent in 2002 and is forecasted to be -3.6 percent
in 2004.
Consumer Confidence
Given that consumer spending constitutes such

an integral portion of the U.S. economy, reputed to
account for two-thirds of all economic activity,
economists and policymakers closely track the
monthly consumer confidence reports. This index,
which reflects consumers assessment of current
business conditions, has implications for the performance of the stock markets as well as the economy
in general. Once again, depressed consumer sentiment impacts state economic activity and eventually affects, negatively, the performance of state
and local government retirement funds. Figure 3
demonstrates the movement of this consumer
confidence index as presented by the University of
Michigans Index of Consumer Sentiment during
the past 13 years or so.5
During the throes of the 1990/1991 recession, consumer sentiment across the country was
very depressed (65.5). As the economy gradually
Index of Consumer Sentiment December 1990 to December 2003
110
100
91
90
95.1
96.9
100.5
105.4
98.4
88.8 86.7
92.6
80
70
65.5
60
50
40
30
20
10
0
1990 1992 1994 1996 1998 1999 2000 2001 2002 2003
figure 3
Source: University of Michigan, Survey of Consumers, Index of Consumer Sentiment
sprang forward, the index gradually began climbing

and attained 105.4 in December 1999, reaching its
apex in January 2000 (112.0), the indexs highest
level over a period of 50 years (November 1952
to December 2003). It should also be noted that
the broad economic prosperity and relative calm in
global affairs in the late 1990s resulted in the index
exceeding 100 in 44 of the 48 months in the years
1997 through 2000.
Energy Prices
World energy supplies play a pivotal role in the

state of the U.S. economy and every other country in
the world. A sharp spike in world energy prices can
wreck havoc in a nations economic performance,
either impeding or assisting economic growth
trends. Uncertainty in the Middle East, where a bulk
of the worlds oil supplies originates, can result in oil
prices shooting up and even bringing about a recession. The oil price hikes in the early and late 1970s
certainly contributed to the U.S. economy spiraling
into recession; similarly, low priced and abundant
supplies of oil will stimulate growth, as it did in the
late 1990s in the United States. As in the case of
the other variables affecting the economy, energy
prices play a direct role in state economies and, by
extension, in the performance of public sector retirement funds.
Figure 4 presents both the nominal and real

price of regular gasolineas reported by the U.S.
Department of Energybetween January 1980 and
January 2004 along with a projection for January
2005. Combining the information reflected in
Figure 4 and the GDP information in Table 9 indicates that the slump in gasoline prices coincided
with a sharp uptick in economic growth during the
late 1990s. For instance, in 1998 when the price
of gasoline in real terms was about 103 cents per
gallon, GDP growth stood at an impressive 4.2
percent; similarly, in 1999, when gasoline was about
113 cents per gallon, GDP growth was at 4.5 percent.
While the price of gasoline certainly is not the only
factor determining the health and pace of economic
growth, it certainly is an important one.
Interest Rates
Interest rates are among the multitude of

factors that play a dominant role in national and
state economies, as well as in the finances of public
sector retirement systems. While an accommodative
monetary policy stance by the Federal Reserve
System is an important variable in the equation
to spur economic growth, the reverse, a restrictive
stance, acts as a brake on economic growth and
potential inflationary pressures. However, an
environment of rising interest rates has the benefit
Regular Gasoline Prices: Nominal and Real January 1980 to January 2005
350
Projected
Cents per Gallon
300
250
Real (2004=1)
Price
200
150
100
Nominal Price
50
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
figure 4
Source: U.S. Department of Energy

Note: Nominal price refers to actual price; real price refers to the price adjusted for inflation.
of generating higher returns for the portfolios

of public sector retirement systems; similarly,
declining interest rates have the opposite effect on
these investments, particularly if they are primarily
in cash and money market accounts.
Probably the most potent weapon deployed
by the Federal Reserve System in its arsenal of
monetary options involves regulating the federal
funds rate, i.e., the cost of borrowing immediately
available funds. Figure 5 provides a graphical representation of the federal funds rate during the past 20
or so years.
Federal Funds Rate 1981 to 2003
20
16.39
10.23
10
8.1
5.3 5.46 5.35
1.13
2003
2002
1.67
2001
1998
1997
4.97
1996
1990
1987
1984
1981
3.88
3.02
1999
6.24
2000
6.66
1993
percent
15
figure 5
Source: Federal Reserve System, June 28, 2004
The 16.4 percent federal funds rate set by the

Federal Reserve Bank in 1981 was the highest rate
set since 1955 and involved only one of six years
when this pivotal rate stood in double digits between
1955 and 2003. The rate gradually was lowered from
this level in the next two decades, even though there
were years when the rate was increased, to reach the
astoundingly low 1 percent level in 2003. In fact,
the federal funds rate in 2003, and for the first half
of 2004, remained at the lowest level it had been in
almost five decades (46 years to be precise). The 25
basis points increase enacted by the Federal Reserve
Bank in late June 2004, the first such increase in
four years, still meant that interest rates continued at
nearly historic lows. In fact, the real federal funds
rate, adjusted for inflation, has been below zero for
much of the past two years. Analysts contend that
this constitutes the Federal Reserves most aggressive easy-money policy since well before World War
II, and reflects the central banks determination to

ward off the shocks caused by recession, terrorist
attacks and anxieties surrounding the war in Iraq.
As previously indicated, the aggressive easymoney approach pursued by the Federal Reserve
Bank in the last three years or so was an effort to
ward off a slump in economic performance, coincided with the slump in the nations equity markets
between 2000 and 2002. As expected, these twin
features impacted negatively on the finances of the
nations public retirement systems.
Equity Markets
In the 1990s, U.S. equity markets experienced

a tremendous upsurge, ranking among the highest
in the history of the markets based on a number of
criteria. From the Dow Jones Industrial Average
to the S&P 500 Index to the Nasdaq Composite to
the Russell 2000 Index, the performance of these
indices was indeed unparalleled. As a result, individuals, corporations, institutional investors and
state and local government retirement systems saw
an unprecedented escalation in their portfolios. By
March 2000, the stock markets red-hot performance
was exemplified by the fact that the S&P 500 Index
rose by 480 percent in the prior decade, its best
10-year return in four decades, and the technologyladen NASDAQ composite index zoomed forward
by 1,035 percent in the same 10 years.6 One of the
major forces behind the tremendous gains shown by
the markets during that time period was the zeal for
Internet and other technology stocks displayed by so
many individuals and institutional investors.
This equity market escalation during the 1990s
also saw managers of these state and local government retirement systems shifting a greater proportion of their portfolios away from government
securities to non-government securities (corporate
stocks, corporate bonds, foreign holdings etc.) to
take full advantage of the rise in the equity markets.
Unfortunately, the impressive run-up in the nations
equity markets came to a halt in March 2000, and
for almost the next three years, through 2002, the
markets plummeted and stagnated. When the
nations stock market registers declined for the third
consecutive year in 2002, it marked only the third
time this had happened: 1929 through 1932 during
the Great Depression; 1939 through 1941 during
World War II; and then between 2000 and 2002, the
first occurrence since the 1930s.7
Prior to the stagnant bear market of 2000 to
2002, there were eight notable stock market declines
since 1954. On each of these occasions, stocks rose
in the six months after the economy bottomed out.
In the most recent decline, this did not happen and, in

fact, the S&P 500 actually fell about 10 percent over
the same period. The major differences here were
the revelations concerning Enron and a number of
other corporations engaged in accounting fraud and
illegal activities that shattered investor confidence to
the point of drastically depressing the stock market.
Another reason was that the equity market run-up in
the 1990s was based disproportionately on the telecommunications and technology industries. These
industries had built up capacity levels in excess of
what was needed and the 2000-2002 bear market
resulted in the demise of a number of the companies in this field. Finally, the post-September 11,
2001, environment also served to depress investor
confidence, both individual and corporate, a trend
that impacted negatively on the growth potential of
the markets.
While the length of the markets decline
remained severe, the 2000 to 2002 decline also
ranks as one of the deepest in history. In terms of
the S&P 500 Index, for instance, by late July 2002,
it had declined 47.8 percent from its peak reached
in March 2000; the only post-Depression decline
comparable to this plunge was in 1973-74 when the
S&P 500 fell 48.2 percent. Hence, the 2000 to 2002
decline was not only one of the longest, it also was
one of the deepest on record.
Tables 9 and 10 provide a detailed breakdown
of four major equity market registers and their
performance in the last 10 to 20 years. A review of
this performance illustrates the valleys and peaks
reached by these registers while providing insights
into the record of state and local government retirement systems in buttressing their assets.
Dow Jones Industrial Average
In order to meet their short-term cash requirements, corporations generally borrow from banks.
However, when corporations require long-term
financing, they may sell ownership interests in the
company (common stocks and preferred stocks) to
the public, or borrow from the public by selling
bonds. In particular, companies in need of longterm financing sell portions of the business as stocks
(equity securities) in exchange for cash. While this
is the major method of raising capital other than by
issuing bonds, when the stocks of these corporations
are owned by the public-at-large they are said to be
publicly held. In turn, these publicly held shares
can be traded (sold) to other investors in the stock
market and are, in this case, known to be liquid, or
readily converted to cash.
At the time Charles H. Dow unveiled his

industrial stock average on May 26, 1896, the stock
market was not highly regarded. Prudent investors
bought bonds which paid predictable amounts of
interest and were backed by real machinery, factory
buildings and other hard assets.8 Investors felt reassured by the predictability of the income offered
by bonds as well as the specific dates of maturity
when their principle would be returned. The stock
market, in contrast, dealt in shares of ownership
which had no specific claim on anything a company
owned. Further complicating this scenario was the
fact that investors on Wall Street had difficulties
analyzing the daily jumble of whether stocks were
up a quarter and down an eighth or whether they
were rising, falling or staying even. Dow invented
his stock average to make sense of this confusion
beginning in 1884 with 11 stocks, a majority of them
railroads. (Since railroads ranked high as the largest
and strongest companies in America at that time,
they dominated Dows first average.) Furthermore,
few stocks of industrial companies were publicly
traded since they were considered highly speculative.
The 30 stocks now in the Dow Jones Industrial
Average (DJIA) all are major factors in their industries, and their stocks are widely held by individuals
and institutional investors. They range from aviation (Boeing) to computers (IBM and Intel) to pharmaceuticals (Pfizer, Merck and Johnson & Johnson)
to banking and finance (J.P. Morgan, American
Express, American International Group and Citigroup), an incredible expansion in the concept
envisaged by Dow over a century ago. The Dow
Jones Industrial Average accounted for more than 26
percent of the investable U.S. market, as measured
by the Dow Jones U.S. Total Market Index (about
$11.6 trillion as of December 31, 2003). Table 9
documents the movements of the DJIA between
1983 and 2003.
Dow Jones Industrial Average 1983 to 2003

Year
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
At Start
Years High Years Low
of Year
Close
Close
8,607.52
10,453.90
7,524.06
10,073.40
10,635.25
7,286.27
10,646.15
11,337.92
8,235.81
11,357.51
11,722.98
9,796.03
9,184.27
11,497.12
9,120.67
7,965.04
9,374.27
7,539.07
6,442.49
8,259.31
6,391.69
5,177.45
6,560.91
5,032.94
3,838.48
5,216.47
3,832.08
3,756.60
3,978.36
3,593.35
3,309.22
3,794.33
3,241.95
3,172.41
3,413.21
3,136.58
2,610.64
3,168.83
2,470.30
2,810.15
2,999.75
2,365.10
2,144.64
2,791.41
2,144.64
2,015.25
2,183.50
1,879.14
1,927.31
2,722.42
1,738.74
1,537.73
1,955.57
1,502.29
1,198.87
1,553.10
1,184.96
1,252.74
1,286.64
1,086.57
1,027.04
1,287.20
1,027.04
At Close
of Year
1,0453.9
8,341.63
10,021.50
10,786.85
11,497.12
9,181.43
7,908.25
6,448.27
5,117.12
3,834.44
3,754.09
3,301.11
3,168.83
2,633.66
2,753.20
2,168.57
1,938.83
1,895.95
1,546.67
1,211.57
1,258.64
Change
Points
+2,112.29
Change
Percent
+ 25.32
16,79.87
765.35
710.27
+2,315.69
+1,273.18
+1,459.98
+1,331.15
+1,282.68
+ 80.35
+ 452.98
+ 132.28
+ 535.17
+
+
+
+
+
+
+
+
+
16.76
7.10
6.18
25.22
16.10
22.64
26.01
33.45
2.14
13.72
4.17
20.32
+
+
+
+
+
119.54
584.63
229.74
42.88
349.28
335.10
+
+
+
+
+
4.34
26.96
11.85
2.26
22.58
27.66
47.07
+ 212.10
3.74
20.27
NASDAQ
The NASDAQ is the largest U.S. electronic stock
market and is home to industry leaders in such
areas as technology, retail, communications,
financial services, transportation, media and
biotechnology.10 With approximately 3,300
companies, it lists more companies and, on
average, trades more shares per day than any
other U.S. equities market. In the 1990s, the
performance of the NASDAQ, particularly
the rise in the share prices of technology and
telecommunications companies, was meteoric.
Yields
Percent
2.03
2.27
1.81
1.60
1.47
1.65
1.72
2.03
2.27
2.75
2.65
3.05
3.00
3.94
3.74
3.67
3.67
3.54
4.01
5.00
4.47
table 9
Source: Dow Jones Indexes, www.djindexes.com
As indicated, the 1990s were a period of

exceptional growth in the index with the average
zooming from 2,810 at the beginning of the decade
to 11,358 at the end, an astounding increase of
304 percent. Growth was particularly impressive
in the last five years of the decade when the DJIA
expanded by an average of 25 percent in each of
those years. Starting in 2000, the situation changed
radically and the DJIA plummeted by an average of
10 percent in each of the years between 2000 and
2002. The average recovered to grow by 25 percent
in 2003. This rise and fall in the average was amply
reflected in the performance of public sector retirement systems which saw a similar ebb and flow in
their cash and investment holdings.
Dividends
211.87
189.68
181.07
172.08
168.52
151.13
136.10
131.14
116.56
105.66
99.66
100.72
95.18
103.70
103.00
79.53
71.20
67.04
62.03
60.63
56.33
Similarly, the sharp decline in the equities markets

that began in March 2000 affected the NASDAQ
severely, and the index is still far from reaching
the heady levels achieved in the late 1990s.
Table 10 provides a glimpse into the significant
milestones reached by the NASDAQ index since
1971.
Significant Milestones: NASDAQ Composite
Index Records 1971 to 2004
Milestone
100
500
1,000
2,000
3,000
4,000
5,000
2,048
Date Reached
February 5, 1971
April 12, 1991
July 17, 1995
July 16, 1998
November 3, 1999
December 29, 1999
March 9, 2000
June 30, 2004
Actual
Closing Value
100
501.62
1,005.89
2,000.56
3,028.51
4,041.46
5,046.86
2,047.79
table 10
Source: www.nasdaq.com
As indicated in Table 10, the upward trajectory

of the NASDAQ stock market was very impressive
in the 1990s. For instance, while it took the index
over 20 years to progress from 100 to 500, in the time
period of less than a decade (April 1991 to March
2000), the index exploded from 502 to 5,047, an
astounding acceleration rate. In the period since
March 2000, the index dropped sharply to languish
in triple digit territory for extended months and
midway through 2004 (June 30, 2004) the index
stood at 2,047.79. As with the other indexes, the
nations public retirement systems enjoyed the
tremendous boom in their asset portfolios during
the rise of the NASDAQ and also experienced
setbacks when all these indexes declined between
2000 and 2002.
S&P 500 Index
Widely regarded as the best single gauge of the
U.S. equities market and with more than $1 trillion in
indexed assets, this index includes a representative
sample of 500 major companies in leading industries
of the U.S. economy.9 The history of the S&P 500
dates back to 1923, when Standard and Poors introduced an index covering 233 companies. The Index,
as it is known today, was introduced in 1957 when
it was expanded to include 500 companies. While
the S&P 500 focuses on the large-cap segment of
the market, with more than 80 percent coverage of
U.S. equities, it also is an ideal proxy for the total

market. Figure 6 documents the movement of the
S&P 500 Index between September 11, 1989 and
the first day of trading at the beginning of each year
between 1990 and 2004.
Once again, during the 1990s, the S&P Index
grew at very impressive pace, an improvement of
304 percent between January 2, 1990 and January
3, 2000. The steady increase experienced during
this decade tapered off and the Index fell for the
next three years before climbing upwards again in
2003.
Russell 2000 Index
Russell produces a family of 21 U.S. equity
indexes; the indexes are market cap-weighted and
include only common stocks incorporated in the
United States and its territories.11 These indexes all
are subsets of the Russell 3000 Index, which represents about 98 percent of the investable U.S. equities
market. The Russell 2000 Index, in particular, offers
investors access to the small-cap segment of the U.S.
equity universe, and the performance of these smallcap companies is considered another barometer of
the overall equity market. Figure 7 plots the progress of the Russell 2000 Index at the end of each year
between 1995 and 2003 and reflects trends similar
to the previously discussed markets.
S&P 500 Index 1989 to 2004
1283.3
465.4
figure 6
Source:
www.standardandpoors.com
Russell 2000 Index 1995 to 2003
figure 7
Source: www.russell.com
Note: 1995 refers to June 1, 1995; for the remaining years, it is
January 2.
State Finances
The final component influencing public sector
retirement systems involves state finances. A
comparison of state finances in the latter half of the
1990s with the first few years of this decade represents the starkest of possible contrasts: an extraordinary boom in state finances followed by a fiscal
crisis that has been termed the worst confronting
states since the Second World War. The 1990s
opened with a recession that was relatively mild
even though it affected certain states and parts
of the country (California and the Northeast, for
instance) more severely. By the mid-1990s, state
tax revenues began coming in above expectations,
repeatedly, and states embarked on a series of
actions that previously would have been considered
impossible under any circumstances: slashing tax
rates year after year; boosting spending in such areas
as education, healthcare, corrections and infrastructure significantly; and replenishing reserve funds,
i.e., rainy day funds, to unparalleled levels. States
were able to implement these seemingly disparate actions while ensuring their constitutionally
mandated objective of a balanced budget.
Until about late 2000, state revenues roared in
at record levels, gross state product (GSP) growth
generally was above estimates and unemployment
rates were at record low levels. By early 2001,

however, manufacturing levels began to decline,
the stock markets had slipped from their heady
levels and the economy began sliding into recession, a trend only worsened by the September
11, 2001, terrorist attacks. While the recession
that ensued was relatively shallow, the cumulative impact on state economies and finances has
been extremely severe. In fact, the tremendous
negative pressures created by the downturn in the
economy were reflected in such trends as dwindling
revenue flows, rising unemployment numbers and
exploding Medicaid costs at the state level. Each
of these negative trends pummeled state finances in
a vicious, self-perpetuating cycle. While the steep
drop in tax revenues, due to severely reduced individual and corporate income taxesgiven the high
unemployment rate, almost nonexistent capital
gains revenue and lower corporate profitsaffected
the revenue side of the balance sheet, the increasing
number of Americans seeking assistance from their
state governments, whether in the form of unemployment insurance or Medicaid health coverage,
pressured the expenditure side of the balance sheet.
Consequently, these bleak financial times sweeping
over state and local governments filtered down to
negatively impact public sector retirement system
finances too.
Highlighting the following aspects of state
finances--unemployment rates, revenue inflows
and budget shortfalls--helps compare and contrast
these very different periods between 1998 and 2003
in the 50 states.
Unemployment Rates
A comparison of state unemployment rates
between the late 1990s and the early years of the
current decade illustrates one of the most marked
differences between the two eras. As indicated
earlier, the final years of the last decade saw some
of the lowest unemployment rates in the history of
the country while, more recently, these rates have
climbed up considerably. As expected, these higher
unemployment rates have a distinct impact on state
economies and the end result of depressing the
finances of public sector retirement systems.
Figure 8 provides a graphical representation
of the national unemployment rate between 1940
to 2003. The final five years are of greater significance in terms of this report and, as indicated, the
rate had begun its downward drive in the mid-1990s
sinking to 4 percent in 2000, before climbing up to
4.7 percent in 2001, 5.8 percent in 2002 and then 6
percent in 2003. The rate in October 2004 has been
better, 5.5 percent.
National Unemployment Rate 1940-2003
figure 8
Source: U.S. Department of Labor, Bureau of Labor
Statistics
In terms of the state-by-state breakdown of

unemployment rates, similar trends are apparent.
Table 11 documents the unemployment rate in the
50 states (and the District of Columbia) for the fiveyear period, 1998 to 2003.
As evidenced in Table 11, during the late 1990s
states experienced some of their lowest unemployment rates in decades as the economy continued its
forward progression. Even though overall economic
growth started sputtering toward the end of 2000,
the unemployment rates in states in that year were
remarkable. Alongside the national unemployment
rate of 4 percent, states such as Connecticut and
Virginia (both at 2.2 percent), South Dakota (2.3
percent) and Iowa and Massachusetts (both at 2.6
percent) secured record-low rates. During this year,
except for Alaska, where the unemployment rate was
6.7 percent, every other state had an unemployment
rate lower than 5.7 percent. In contrast in 2003, only
three states had unemployment rates at or lower than
4 percent, South Dakota (3.6 percent), Nebraska and
North Dakota (both at 4 percent). Furthermore, 23
states and the District of Columbia had unemployment rates higher than 5.7 percent with Oregon (8.2
percent), Alaska (8 percent) and Washington (7.5
percent) experiencing the most severe labor conditions. Inevitably, the dismal employment outlook
in states in recent years, particularly between 2001
and 2003, had the unfortunate side effect of smothering the growth of these public sector retirement
systems.
Average Annual Unemployment Rate by State

in Percent 1998 to 2003
State
National
1998
4.5
1999
4.2
2000
4.0
2001
4.7
2002
5.8
2003
6.0
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D.C.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
4.2
5.8
4.1
5.5
5.9
3.8
3.4
3.8
8.8
4.3
4.2
6.2
5.0
4.5
3.1
2.8
3.8
4.6
5.7
4.4
4.6
3.3
3.9
2.5
5.4
4.2
5.6
2.7
4.3
2.9
4.6
6.2
5.6
3.5
3.2
4.3
4.5
5.6
4.6
4.9
3.8
2.9
4.2
4.8
3.8
3.4
2.9
4.8
6.7
3.4
4.8
4.8
6.4
4.4
4.5
5.2
2.9
3.2
3.5
6.3
3.9
4.0
5.6
5.2
4.3
3.0
2.5
3.0
4.5
5.1
4.1
3.5
3.2
3.8
2.8
5.1
3.4
5.2
2.9
4.4
2.7
4.6
5.6
5.2
3.2
3.4
4.3
3.4
5.7
4.4
4.1
4.5
2.9
4.0
4.6
3.7
3.0
2.8
4.7
6.6
3.0
4.9
4.5
6.7
4.0
4.4
4.9
2.8
2.2
3.9
5.7
3.6
3.7
4.3
4.9
4.3
3.2
2.6
3.7
4.1
5.4
3.5
3.8
2.6
3.5
3.3
5.6
3.4
5.0
3.0
4.0
2.8
3.7
5.0
4.6
3.6
3.0
4.0
3.1
4.9
4.1
4.1
3.8
2.3
3.9
4.2
3.3
2.9
2.2
5.2
5.5
3.6
3.9
5.3
6.4
4.7
5.0
5.4
3.7
3.3
3.4
6.4
4.8
4.0
4.6
5.0
5.4
4.4
3.3
4.3
5.4
5.9
3.9
4.0
3.7
5.3
3.7
5.5
4.7
4.6
3.1
5.3
3.5
4.2
4.8
4.9
5.5
2.9
4.2
3.8
6.3
4.7
4.7
5.3
3.4
4.4
4.8
4.4
3.6
3.4
6.4
4.8
4.5
3.9
5.9
7.7
6.2
5.4
6.7
5.7
4.3
4.2
6.4
5.5
5.1
4.2
5.8
6.5
5.1
4.0
5.1
5.6
6.1
4.4
4.4
5.3
6.2
4.4
6.8
5.5
4.6
3.6
5.5
4.7
5.8
5.4
6.1
6.7
4.0
5.7
4.5
7.5
5.7
5.1
6.0
3.1
5.1
6.3
6.1
3.7
4.1
7.3
6.1
5.5
4.2
5.8
8.0
5.6
6.2
6.7
6.0
5.5
4.4
7.0
5.1
4.7
4.3
5.4
6.7
5.1
4.5
5.4
6.2
6.6
5.1
4.5
5.8
7.3
5.0
6.3
5.6
4.7
4.0
5.2
4.3
5.9
6.4
6.3
6.5
4.0
6.1
5.7
8.2
5.6
5.3
6.8
3.6
5.8
6.8
5.6
4.6
4.1
7.5
6.1
5.6
4.4
table 11
Source: U.S. Department of Labor, Bureau of Labor

Statistics
State Revenue Trends

State revenue patterns between the late 1990s
and the early years of the current decade constitute
the most marked divergences between the two eras.
The collapse in state revenues resulted in budget
shortfalls in states that continue to plague state
finances. Cumulatively, in a four-year period, fiscal
years 2001 through 2004, states were confronted
with a deficit of about $250 billion, a monumental
amount by any standard. Table 12 documents the
year-over-year change in quarterly revenues in both
nominal and real terms. The information in real
terms reflects adjustments for inflation and legislated tax changes.
Focusing on the changes in real terms in Table
12 indicates that state total revenue inflows were
extremely strong throughout calendar years 1997,
1998, 1999 and through the third quarter of 2000.
In fact, for the four-year period 1997 through 2000,
the average revenue increase per quarter stood at 5
percent, a noteworthy achievement indeed. Total
tax revenue grew 11.4 percent in nominal terms
from April-June 1999 to April-June 2000, by far
the fastest total growth for any quarter during the
entire decade of 1990s.
The souring national economy soon came to
be reflected in state revenue beginning in the final
quarter of 2000, when revenues only grew by a scant
0.7 percent (real) compared to the same three-month
period in 1999. A further indication of the revenue
woes confronting states during this time period (first
quarter of calendar year 2001 through the second
quarter of calendar year 2004) is demonstrated by
the fact that eight of the 14 quarters resulted in negative growth rates when compared to the same time
period in the prior year. These eight consecutive
quarters of negative revenue growth created gaping
holes in state budgets and one of the consequences

here was that states were unable to, or forced to
postpone, making their routine contributions to
their retirement systems. Consequently, these
retirement systems were negatively affected. The
steep declines of -8.7 percent and -12.8 percent in
the first two quarters of 2002 were the worst declines
in state revenues in decades. While the situation has
improved in 2004, demonstrated by the 5.5 percent
and 6.7 percent real growth rates reached in the first
and second quarters of 2004, the existing, built-in
financial demands of states current responsibilities
are growing more rapidly than are revenues.12
State Budget Shortfalls
As documented in state unemployment and
revenue trends, the 2001 recession severely damaged
the financial foundation of every state government.
The sharp drop in revenue was accompanied by a
sharp increase in the demand for state services as
thousands of individuals tried to grapple with the
fallout of the recession and the sluggish recovery.
While the far-reaching consequences of the
economic downturn in the states have been discussed
in many forums, there are several statistics that serve
to hone in on the extent of these fiscal difficulties.
For instance, at the start of fiscal year 2000 (July 1,
1999 to June 30, 2000), the cumulative beginning
balance for states stood at an impressive $26 billion;
the cumulative ending balance was $33.2 billion. In
sharp contrast, at the start of fiscal year 2003 (July
1, 2002 to June 30, 2003), the cumulative beginning
balance for states had dropped to $10.7 billion; the
ending balance for the same fiscal year was $10.2
billion. Similarly, in fiscal year 2000, the contributions to state budget stabilization funds reached a
staggering $27.4 billion; in contrast, in fiscal year
2003, this particular fund had $9.3 billion.
Year-Over-Year Change in Quarterly State Tax Revenue 1997 to 2004
1997
1998
1999
2000
2001
2002
2003
2004
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Nominal Real Nominal Real Nominal Real Nominal Real
6.0
5.0
6.2
5.4
5.5
3.5
6.8
5.1
6.5
5.1
9.7
9.4
6.6
5.2
7.5
6.4
4.8
4.5
5.0
5.2
6.1
3.4
7.4
4.5
9.7
5.7
11.4
7.2
7.1
3.3
4.0
0.7
5.1
2.2
2.5
0.8
-3.1 -4.6
-2.7 -3.4
-7.8 -8.7
-10.6 -12.8
2.5 -0.6
1.9 -1.7
1.4 -4.3
3.2 -1.8
4.5
0.4
7.3
1.8
8.1
5.5
11.4
6.7
8.4
4.5
table 12
Source: Rockefeller Institute

Note: Quarter 1=January to March; Quarter 2=April to June; Quarter 3=July to
September; Quarter 4=October to December
Clearly, the negative implications

of broader national economic trends
(wavering gross domestic product
growth; rising unemployment levels;
mounting crises in consumer confidence; escalating oil prices; drooping
interest rates; and, faltering equity
markets) coalesced with such negative developments at the state level
(plunging revenue levels; increasing
unemployment rates; rising budget
shortfalls) to seriously undermine
the financial position of public sector
retirement systems.
Chapter 4
Analysis of Federal Government Data on
he following two chapters present statistical information on state and local government retirement plans. The two primary sources of information are data collected by the U.S. Department of
Commerce, Bureau of the Census in their annual survey of state and local government employee
retirement systems (Chapter 4) and data collected by The Council of State Governments March
2004 survey forwarded to 192 state and local plans around the country (Chapter 5). The federal information
is the most recent report prepared on the topic by the U.S. Department of Commerce (released December 14,
2003) and covers the period July 1, 2001 through June 30, 2002. The next report is expected to be released
in December 2004 and will cover the period July 1, 2002 through June 30, 2003. Hence, there is a lag in
the accumulation, preparation and release of this information of almost 18 months.
At the outset, it is important to mention that
the U.S. Department of Commerce, Bureau of the
Census information cannot be equated to information found in the accounting statements of public
employee retirement systems administered by state
and local governments throughout the nation.1 In
particular, this federal data should not be used to
reach any conclusions about the financial condition
of specific government retirement systems or their
parent governments. This is because the information in this federal survey data is gathered to measure
the economic activity of state and local governments
in general; the definitions used in these statistics can
vary considerably from definitions applied in standard accounting reports. In fact, these definitional
differences can include those of coverage (what
constitutes a government entity), functional activity,
financial transaction (revenue, expenditure, indebtedness and asset), or measurement (cash versus
accrual accounting, or asset valuation procedures).2
Furthermore, comparing revenue to expenditure for
a particular government will not necessarily yield
meaningful conclusions about a surplus or deficit
condition for that government.
State and Local Government

Retirement Plan Trends
The employee retirement systems of state and

local governments remain a critical component
of our nations government sector. Not only do
these retirement systems cover tens of thousands
of public sector employees and provide current and
future income for these retirees and employees, they
contain significant investment holdings as well. As
cited previously, cash and investment holdings of
state and local government employee retirement
systems reached approximately $2.2 trillion in
2002, a very slight increase of $362 million over
the previous year (2001). Interestingly, more than
$1.6 trillion of this total portfolio was invested in
non-government securities, more than 76 percent,
while $226 billion was invested in federal, state and
local government securities (10.5 percent) and about
$110 billion (5 percent) was in cash and other shortterm investments.
Table 13 provides national data on state and
local government employee retirement system
finances for the three most recent years, 2000, 2001
and 2002.
In this chapter, reference to 2002 involves the period July 1, 2001 to June 30, 2002; 2001 involves the period July
1, 2000 to June 30, 2001; and 2000 involves July 1, 1999 to June 30, 2000.
National Summary of State and Local Government Employee Retirement System Finances
2000 to 2002 (Thousands of Dollars)
Category
2000
2001
Difference
2000 & 2001
2002
Difference
2001 & 2002
Receipts
Employee Contributions
$24,994,468
$26,437,534
$1,443,066
$27,544,022
$1,106,488
State Government Contributions
$17,546,723
$17,594,431
$47,708
$17,182,861
-$411,570
Local Government
Contributions
$22,608,391
$21,250,360
-$1,358,031
$21,609,170
$358,810
$231,900,075
$57,940,554
-$173,959,521
-$72,456,581
-$130,397,135
$297,049,657
$123,222,879
-$173,826,778
-$6,120,528
-$129,343,407
$91,274,292
$100,936,411
$9,662,119
$110,128,411
$9,192,000
Withdrawals
$4,431,876
$4,151,146
-$280,730
$4,079,492
-$71,654
Other Payments
$4,751,715
$7,170,433
$2,418,718
$7,772,328
$601,895
$100,457,883
$112,257,990
$11,800,107
$121,980,231
$9,722,241
Earnings on Investments
Total
Payments
Benefits
Total
Cash and Investment Holdings
Cash and Short -term
Investments
$121,142,060
$117,392,023
-$3,750,037
$109,762,677
-$7,629,346
Government Securities
$271,551,952
$246,787,978
-$24,763,974
$225,584,917
-$21,203,061
$1,602,291,271
$1,620,488,011
$18,196,740
$1,649,810,584
$29,322,573
$173,657,750
$172,961,157
-$696,593
$172,832,778
-$128,379
$2,168,643,033
$2,157,629,168
-$11,013,865
$2,157,990,956
$361,788
Non-governmental Securities
Other Investments
Total
Source: U.S. Department of Commerce, Bureau of the Census

Note: Totals may not add up due to rounding.
As evident in Table 13, state and local government retirement systems experienced a decline of
$11 billion between years 2000 and 2001 and a
slight increase of $362 million between years 2001
and 2002 in total cash and investment holdings.
The marked decline between the initial three years
indicated represents the significant decline experienced in the stock market (and documented in the
previous chapter) beginning in March 2000, a trend
that continued through the next two years to about
the end of calendar year 2002.
A review of investment earnings also reflects
this trend. For instance, in 2000, earnings on investments amounted to an impressive $232 billion.
Given that the stock markets decline began in
March 2000, the full impact of this decline was
not reflected in 2000 investment earnings figures.
However, the next two years saw the stock market
plunging drastically and state and local government
retirement systems investment earnings reflected
the downward trajectory of this market trend as well.
Specifically, between 2000 and 2001, the drop was
table 13
$174 billion and between 2001 and 2002, the decline

was $129 billion.
A number of other trends also may be gleaned
from Table 13. As an example, state government
contributions to employee retirement systems
actually declined by $412 million between 2001
and 2002; there was a slight increase of $48 million
between the prior two years 2000 and 2001. Local
government contributions to their retirement
systems fell by $1.4 billion between 2000 and
2001; in the next year, contributions rose by $359
million. During this time period, as detailed in
Chapter 3, state and local governments were experiencing serious budget shortfalls and often deferred
making contributions to their retirement systems, a
development that led to the serious underfunding of
these pension plans. Several quick examples help
reinforce this point. The city of San Diego currently
faces a $1.1 billion unfunded liability in its pension
system as a result of the mayor and the city council
intentionally diverting cash meant for the pension
system to balance the citys budget, a practice that
has gone on since 1996.3 Similarly, in 2001 North
Carolina Governor Easley was forced to seize $151

million the General Assembly had budgeted toward
state pension fund contributions in order to balance
a state budget shortfall that eventually surpassed $1
billion that year.4 In Connecticut, the state treasurer
noted that the General Assembly had appropriated
less than the actuarys recommended contribution
to the Teachers Retirement Fund for decades and
the annual state contribution for pension plans also
remained below recommended actuarial levels.5
In terms of employee contributions, there was
a slight drop-off with an increase of $1.4 billion
between 2000 and 2001 and the slightly smaller
amount of $1.1 billion between 2001 and 2002.
Even in terms of benefits payments, similar trends
were evident with $9.7 billion disbursed between
2000 and 2001, and the slightly lesser amount of
$9.2 billion dispensed between 2001 and 2002.
Finally, analysis on the investment strategies
of these state and local government retirement plans
may be extracted from a review of the composition
of their cash and investment holdings. Table 14
provides information on this data for the period
1993 through 2002, enabling broader trends to be
gleaned given the longer time period.
Table 14 demonstrates several striking changes

in the investment composition of state and local
government cash and investment holdings in the
past decade, i.e., 1993 to 2002. The most important
feature is the increasing proportion of these cash
and investment holdings that have been allocated
to non-governmental securities. For instance, in
1993, non-governmental securities amounted to
only 62 percent of total cash and investment holdings; in less than 10 years, in 2002, this amount
had increased significantly to 76 percent. Even
within this category, the influence of corporate
stock played an increasingly important role, rising
from 33 percent of non-governmental securities in
1993, to 38 percent in 2002. While state and local
government retirement systems did not have any
exposure in foreign investments in 1993, in 1998
they had 11 percent of their non-governmental
securities allocated to this new investment type.
This foreign investment exposure increased to 13
percent in 2000 and 2001 before declining marginally to 12 percent in 2002. Other investments, such
as real property and miscellaneous instruments, also
increased nominally between 1993 and 2002, from
7 percent to 8 percent.
State and Local Government Employee Retirement System Finances

Composition of Cash and Investment Holdings by Percent 1993 to 2002
Category
1993
1998
2000
2001
2002
Cash and Short-term Investments
7.19%
5.3%
5.59%
5.44%
5.09%
Government Securities
Federal Government
State and Local
Governments
Non-governmental Securities
Corporate Bonds
Corporate Stocks
Mortgages
Funds Held in Trust
Foreign Investments
Other Non-governmental
Other Investments
Real Property
Miscellaneous Investments
Total
22.1%
22.04%
0.06%
16.2%
16.1%
0.1%
12.52%
12.33%
0.19%
11.44%
11.38%
0.05%
10.45%
10.42%
0.04%
62.07%
18.95%
32.73%
2.11%
3.12%
0
8.27%
7.48%
2.57%
4.91%
100%
72.8%
15.0%
37.2%
1.3%
11.3%
8.0%
5.7%
1.9%
3.8%
100%
73.88%
15.8%
36.32%
0.98%
13.2%
7.58%
8.01%
2.18%
5.83%
100%
75.11%
17.67%
35.36%
1.06%
12.78%
8.24%
8.02%
2.02%
5.99%
100%
76.45%
16.32%
37.76%
0.96%
3.26%
11.8%
6.35%
8.01%
1.99%
6.02%
100%

table 14
A graphical presentation of these marked

differences in the cash and investment holdings
of state and local government retirement systems
between 1993 and 2002 further reinforces the
enhanced importance of non-governmental securities in recent years. Figure 9 demonstrates the
increased importance played by corporate stocks
and foreign holdings at the expense of government
securities such as federal government instruments.
In particular, Figure 9 shows the jump in foreign
investment holdings from zero to 12 percent over
the course of the decade. As indicated earlier, some
of the other investment types that played a role of
lesser significance included cash and short-term
investments and mortgages.
declined even further by 2002 (0.04 percent). Also,

cash and short-term instruments declined from
about 7 percent of total cash and investment holdings in 1993, to about 5 percent in 2002.
These trends in combination reflect the more
aggressive investment approach adopted by state
pension fund managers during the latter years
of the decade. Undoubtedly, this decade-long
trenda greater exposure in the equity markets as
opposed to the lower returns and lower risk levels
found in governmental securitiesreflected a major
philosophical shift in the investment strategies of
investment/portfolio managers controlling these
public retirement funds from prior periods. In addi-
Selected Investment Types: State and Local Government Retirement Systems 1993 and 2002
figure 9
Note: Totals do not add up to 100 percent due to rounding.
In terms of the investment categories that were

of diminishing relevance during this decade, the
most significant change involved governmental
securities, such as federal (U.S. Treasury and other
federal agency notes), state and local government
instruments. The percentage allocation of governmental securities in state and local government cash
and investment holdings slumped from 22 percent of
the total in 1993, to 10 percent in 2002, a precipitous
decline indeed. Interestingly, while these retirement
systems had minimal exposure in state and local
government instruments in 1993 (0.06 percent of
total cash and investment holdings), the amount
tion, it reflected their desire to take full advantage

of the booming equity markets that held sway in
the mid-to-late 1990s. Undoubtedly, this allocation
decision certainly reaped dividends during this time
period and state and local retirement funds soared
to unprecedented heights in terms of their cash and
investment holdings. Unfortunately, the collapse of
the equity markets and severely depressed interest
rates in the three-year period 2000 through 2002
brought its own unique blend of financial woes
that pounded public retirement funds. While the
recovery of the equity markets in 2003 helped
assuage some of the steep losses experienced in
their aforementioned three-year period, the nations

public retirement funds certainly did not improve
to the towering heights reached at the end of the
1990s.
Along with a review of the total cash and
investment holdings, another level of analysis
involves total receipts and payments by the state
and local government retirement systems. In 2002,
total receipts for these retirement plans amounted
to -$6.1 billion, brought on primarily as a result of
negative earnings on investments. (Net earnings
are the sum of earnings on investments plus gains
on investments minus any losses on investments).
In contrast, total receipts in 1993 and 1998 were
an impressive $125.9 billion and $263.4 billion,
respectively. Similarly, total payments in 2002
were significantly higher than in any other year in
the previous decade. Specifically, they totaled $122
billion, while in 1993 and 1998 they amounted to
$52.6 billion and $84.3 billion, respectively. Table
15 documents the trends associated with total
receipts and payments between 1993 and 2002.
As demonstrated in Table 15, total receipts

plunged sharply during the review period, while
total payments more than doubled. Total receipts
grew by 109 percent between 1993 and 1998 while
tumbling by 102 percent between 1998 and 2002.
In terms of the specifics, employee contributions grew by 35 percent between 1993 and 1998,
and by 26 percent between 1998 and 2002. In
contrast, government contributions, after expanding
by 21 percent between 1993 and 1998, dropped by 8
percent between 1998 and 2002. Specifically, state
government contributions fell by 9 percent and
local government contributions by 8 percent during
this latter period. In fact, as alluded to earlier, this
development is corroborated by the fact that as state
governments faced rising budget problems, they
either cut contributions or made no contributions
to their state retirement systems. Finally, earnings
on investments dealt the most serious blow to total
receipts between 1998 and 2002, dipping by as much
as 136 percent. As noted earlier, the serious erosion
of the equity markets during the latter three years of
State and Local Government Employee Retirement System Finances Breakdown of

Total Receipts and Payments by Amount 1993 to 2002 (Thousands of Dollars)
Category
Total Receipts
Employee Contributions
Government Contributions
State
Local
Earnings on Investment
Total Payments
Benefits
Withdrawals
Other payments
1993
1998
2002
$125,942,566
$16,137,931
$34,991,684
$15,186,886
$19,804,798
$74,812,951
$263,396,183
$21,846,144
$42,366,937
$18,903,094
$23,463,840
$199,183,102
-$6,120,528
$27,544,022
$38,792,031
$17,182,861
$21,609,170
-$72,456,581
$52,598,701
$48,327,862
$2,477,142
$1,793,697
$84,339,681
$76,489,443
$3,974,963
$3,875,275
$121,980,231
$110,128,411
$4,079,492
$7,772,328
table 15

Note: Government contributions comprise state and local government contributions.
In terms of total payments, between the first

two periods there was an increase of 60 percent
($52.6 billion to $84.3 billion) and an increase of 45
percent ($84.3 billion to $122 billion) between the
next two periods. A bulk of the payments involved
benefits, which increased by 58 percent between
1993 and 1998, and then by 44 percent between
1998 and 2002.
Figure 10 provides a graphical representation
of some of these trends, particularly as they related
to total receipts and total payments for 1993, 1998
and 2002. The comparisons between these three
periods are instructive; in the first instance, they
indicate an economy that was expanding while in
the second instance, they reflect an economy that
was facing serious problems.
Another area of great interest in an analysis
of state and local government retirement systems
involves participantboth active and inactive
numbers and membership trends. Table 16 contains
this information at the national level for 2002, the
most recent year available.
As indicated in Table 16, a majority of the
participants in public retirement plans in 2002
belonged to state government plans (15.4 million
participants) as opposed to local government plans
(1.9 million). Specifically, local government plan
participants amounted to about 11 percent of total
(active and inactive) membership. As expected,
there were more local government plans available
Receipts and Payments 1993 to 1998 and 2002
percent
this period was the major contributory factor here.

Of course, between 1993 and 1998 the scenario was
much healthier with the earnings on investment
bounding ahead by 166 percent.
figure 10
Source: U.S. Department of Commerce, Bureau of

Economic Analysis
(2,451) in contrast to the state government plans

(219). Another statistic of interest involves the
proportion of beneficiaries receiving payments
to total membership. For the review period, this
percentage stood at 36 percent. Within the local
government plans, almost two-thirds of the membership belonged to plans established by municipalities.
County plans ranked next, with school district plans
ranking third in this classification system.
An accurate profile of membership trends
in the public retirement system may be gleaned by
comparing 2002 data with data from a decade before
(1993); Figure 11 carries out this task.
Number and Membership in State and Local Government Employee Retirement Plans 2002
Membership
Type of Government
Number of
Systems
Active
Inactive
Total
Beneficiaries
Receiving Periodic
Payments
Local Plans
County
Municipality
Township
Special District
School District
164
1,761
404
108
14
478,896
1,073,788
34,928
52,867
76,131
53,339
62,898
3,280
7,393
8,303
532,235
1,136,686
38,208
60,260
84,434
225,665
705,304
20,330
26,572
40,136
Total Local Plans
2,451
1,716,610
135,213
1,851,823
1,018,007
219
12,407,222
2,987,492
15,394,714
5,180,415
2,670
14,123,832
3,122,705
17,246,537
6,198,422
State Plans
Total U.S. (State & Local)
table 16
millions of participants
Changes in Membership Profile:

State and Local Government Retirement Plans 1993 and 2002
figure 11

Note: The category Beneficiaries refers to retirees currently receiving
periodic payments.
As the figure indicates, there has been an explosion in the number of participants in state and local
government retirement plans between 1993 and
2002. Specifically, total participants (active and
inactive) expanded from 13.3 million participants
to 17.2 million participants, almost a 30 percent hike
in a nine-year period. Another interesting development in comparing data for the two years emerges
when one assesses the relative importance of active,
inactive and beneficiaries to total participants. In
1993, active members comprised 89 percent of
total participants (11.8 million of 13.3 million);
in 2002, the number had dropped to 82 percent
(14.1 million of 17.2 million). Similarly, in 1993,
inactive members added up to 11 percent of total
participants; in 2002, this number had increased to
18 percent. Finally, the number of retirees receiving
periodic benefit payments expanded slightly from
34 percent of total participants in 1993, to 36 percent
in 2002. In sum, the most striking trend here is the
fact that while the number of active participants
has declined as a proportion of total participants,
the number of inactive participants as a proportion
of total participants has increased. In reviewing the
membership patterns of public sector retirement
plans across the country for the most recent year,
2002, several interesting features quickly surface.
Table 17 depicts this information.
Number and Membership of State and Local Government Employee Retirement Systems 2002
Membership
State
United States
State
Local
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D.C.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Number of
systems
2,670
219
2,451
13
5
6
36
60
69
63
6
6
158
31
1
4
371
76
12
7
19
35
1
13
98
142
146
4
63
9
14
2
2
10
5
15
10
12
6
12
4
931
13
6
4
17
49
6
5
14
27
41
3
8
Active Members
Total
Number
17,246,537
15,394,714
1,851,823
254,141
65,483
333,331
125,920
2,040,239
313,488
152,861
41,047
11,604
717,870
542,696
66,043
69,770
902,466
270,187
262,975
187,877
245,885
284,557
55,443
278,811
342,380
502,237
474,911
263,725
315,433
78,350
84,856
92,263
54,149
496,604
140,989
1,286,634
526,699
33,499
954,182
163,113
217,454
532,543
43,597
365,039
47,502
249,137
1,364,092
115,366
31,531
469,172
270,199
80,416
386,409
41,362
14,123,832
12,407,222
1,716,610
222,913
46,421
230,637
109,373
1,709,652
214,329
140,885
39,977
11,589
658,824
358,713
62,208
62,431
643,583
240,460
164,336
156,486
197,409
228,213
52,480
232,261
321,579
470,218
297,084
152,892
269,006
53,131
66,348
85,285
46,365
434,620
118,300
1,180,765
456,813
28,598
702,728
153,526
168,687
468,826
39,581
226,910
36,016
229,199
1,231,517
93,743
23,841
369,239
241,793
65,955
272,361
35,726
% of Total
82%
81%
93%
88%
71%
69%
87%
84%
68%
92%
97%
100%
92%
66%
94%
89%
71%
89%
62%
83%
80%
80%
95%
83%
94%
94%
63%
58%
85%
68%
78%
92%
86%
88%
84%
92%
87%
85%
74%
94%
78%
88%
91%
62%
76%
92%
90%
81%
76%
79%
89%
82%
70%
86%
Inactive Members
Number
% of Total
3,122,705
2,987,492
135,213
31,228
19,062
102,694
16,547
330,587
99,159
11,976
1,070
15
59,046
183,983
3,835
7,339
258,883
29,727
98,639
31,391
48,476
56,344
2,963
46,550
20,801
32,019
177,827
110,833
46,427
25,219
18,508
6,978
7,784
61,984
22,689
105,869
69,886
4,901
251,454
9,587
48,767
63,717
4,016
138,129
11,486
19,938
132,575
21,623
7,690
99,933
28,406
14,461
114,048
5,636
18%
19%
7%
12%
29%
31%
13%
16%
32%
8%
3%
0%
8%
34%
6%
11%
29%
11%
38%
17%
20%
20%
5%
17%
6%
6%
37%
42%
15%
32%
22%
8%
14%
12%
16%
8%
13%
15%
26%
6%
22%
12%
9%
38%
24%
8%
10%
19%
24%
21%
11%
18%
30%
14%
Beneficiaries
6,198,422
5,180,415
1,018,007
87,321
26,110
73,716
40,438
835,775
76,450
73,780
19,992
1,060
226,134
110,102
30,330
24,143
309,305
95,911
76,463
59,339
93,479
115,451
30,122
116,908
159,294
248,068
129,045
57,563
112,669
26,052
19,100
25,591
16,740
199,670
42,110
678,122
155,696
10,982
326,156
72,084
92,735
300,992
22,835
86,866
16,338
99,615
327,631
30,776
9,134
130,506
114,484
29,885
119,764
15,590
table 17

Note:
The category Beneficiaries refers to retirees currently receiving periodic payments.
Table 17 demonstrates that in 2002, retirement

system participants in state plans across the country
amounted to about 89 percent of the total number
of participants in public employee retirement plans.
Several additional facts may be culled from Table
17. For instance, California (2 million) remains the
state with the largest number of participants, with
Texas (1.4 million), New York (1.3 million) and
Ohio (954,182) following in descending order. At
the other end of the spectrum, Vermont (31,531) has
the fewest members;7 North Dakota (33,499), Delaware (41,047) and Wyoming (41,362) also ranked
low with respect to the number of retirement system
participants.
However, the marked differences in state
population levels should be considered in assessing
state retirement participants. Inevitably, states with
a large population could be expected to have a large
number of retirement system participants. Similarly,
states that are a haven for retirees, such as Florida
in the South and Arizona in the West, also could
have a greater number of retirement system beneficiaries. California with just over 35 million people,
the highest among all the states, had a little over 2
million retirement system participants; Wyoming,
on the other hand, with a population of 498,830
people, the lowest in the country, and approximately 41,362 retirement system participants.
(Importantly, Wyoming was not the state with the
lowest number of participants). Hence, the states
population numbers remain an important variable in
determining participant numbers.8
In terms of the distribution of plans, a majority
of states (25) had between 10 and 98 state and local
retirement systems; 20 states and the District of
Columbia had between one and nine state and local
retirement systems; and five states had between
142 and 931 state and local government retirement
systems. Pennsylvania (931) was the state with the
most number of retirement system plans followed
by Illinois (371) and Florida (158). At the other
end of the spectrum, Hawaii and Maine (both with 1
each) were the states with the least number of plans
followed by Nevada and New Hampshire (both with
2 each); and Wisconsin (3).
employee to total participants ratio remains lower

in other states such as Mississippi (the lowest in the
country with only 58 percent of total participants
belonging to the ranks of active employees); South
Carolina and Iowa (both at 62 percent); and Minnesota (63 percent).
Finally, another useful statistic that may be
extracted from Table 17 deals with the ratio of
beneficiaries receiving periodic payments to active
members in these state and local government retirement systems. Based on this analysis, while the
percentage for the United States as a whole was 44
percent (state government plans stood at 42 percent
and local government plans came in at 59 percent),
Texas (27 percent) was the state with the lowest
percentage of beneficiaries to active members.9
Nebraska (29 percent), Nevada (30 percent) and
Georgia (31 percent) were the next three states
with the lowest percentage of beneficiaries to
active members. At the other end of the spectrum,
states with a high percentage of beneficiaries to
active members, Pennsylvania was the highest at
64 percent, followed by Rhode Island (58 percent),
New York and Maine (both at 57 percent).
Table 18 documents the cash and investment
holdings of state and local government retirement
plansbroken down by statein 1993 and 2002.
Table 18 also includes information for the United
States as a whole and the District of Columbia.
(Appendix B of the report provides this information splitting the contributions of state and local
government plans, where applicable.) It should be
noted that the cash and deposits category includes
cash, demand, time and savings deposits, and nonfederal short-term investments; government securities includes United States Treasury, other federal
agency, and state and local government financial
instruments; non-government securities includes
corporate bonds, corporate stocks, mortgages, funds
held in trust and other instruments, foreign and international securities, real property; and miscellaneous
investments. Alongside the total for each state and
the District of Columbia, Table 18 also provides a
breakdown between the plans maintained by state
government and local government entities.
Another factor that deserves attention is the

proportion of active members to total members in
the state and local government retirement systems.
In this connection, Delaware ranks first in the
country having 97 percent of its total membership
as active members. In addition, Maine, with 95
percent, and Hawaii, Oklahoma, Massachusetts
and Michigan, all with 94 percent, rank high in this
category among the states. In contrast, the active
Cash and Investment Holdings of State and Local Government Employee Retirement Systems 1993 and 2002
(Thousands of Dollars)
Cash and deposits
1993
2002
1993
Securities
2002
Other Investments
1993
2002
1993
Total
2002
United States
$66,192,708
$109,762,677
$774,314,992
$1,875,395,501
$68,813,123
$172,832,778
$920,571,814
$2,157,990,956
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
D.C.
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Wyoming
$1,664,539
$199,340
$1,168,972
$606,918
$10,251,915
$758,183
$800,008
$0
$173,435
$2,733,507
$790,951
$458,877
$133,657
$5,080,522
$297,329
$137,040
$86,530
$1,165,182
$1,210,310
$180,077
$366,982
$669,437
$5,137,517
$560,571
$19,446
$890,033
$52,956
$152,750
$276,253
$456
$22,151
$391,510
$5,125,285
$6,087,501
$45,572
$5,268,967
$900,884
$1,977,225
$18,497
$2,981,866
$291,452
$258,921
$2,514,205
$206,639
$1,927,699
$1,001,063
$11,334
$256,115
$11,320
$1,370,209
$354,961
$973,285
$692,093
$12,039,122
$916,858
$576,927
$394,470
$109,013
$5,072,053
$1,439,891
$309,892
$187,186
$3,766,504
$2,782,365
$118,145
$519,058
$1,609,583
$1,018,005
$136,041
$1,554,923
$1,441,138
$2,243,077
$427,647
$1,793,510
$2,047,949
$131,996
$46,129
$359,746
$229,021
$8,004
$1,199,746
$7,081,133
$30,782,061
$48,120
$1,929,392
$2,295,890
$3,543,279
$198,346
$2,932,440
$306,152
$2,179,875
$5,553,120
$603,072
$1,499,850
$3,287,805
$273,683
$431,112
$250,186
$10,092,708
$5,703,277
$11,743,094
$4,790,227
$135,413,948
$12,687,175
$9,879,452
$0
$1,759,312
$30,290,278
$18,282,826
$4,054,650
$1,878,661
$33,517,828
$7,611,912
$5,380,027
$3,711,372
$7,942,299
$9,928,854
$2,069,227
$2,238,913
$9,013,805
$24,156,839
$14,876,873
$96,898
$14,050,509
$2,010,188
$2,362,315
$4,243,691
$6,666
$26,473,979
$5,208,931
$112,468,861
$14,962,927
$1,171,977
$49,846,025
$6,092,055
$35,374,256
$486,744
$11,133,997
$1,573,804
$11,163,182
$42,567,460
$3,842,892
$14,498,634
$13,554,331
$84,303
$26,066,062
$1,939,293
$19,477,032
$7,091,368
$24,464,405
$11,083,327
$342,571,350
$27,698,427
$19,390,018
$1,726,493
$4,785,456
$90,800,518
$53,623,832
$7,207,364
$6,099,679
$84,080,738
$14,808,082
$15,847,490
$8,376,193
$21,269,619
$21,406,011
$6,518,800
$33,109,503
$36,321,026
$48,179,965
$32,587,116
$14,550,673
$29,229,715
$3,426,379
$7,014,615
$12,196,672
$3,016,105
$54,790,928
$14,403,043
$243,434,869
$23,928,303
$2,171,537
$106,017,986
$28,963,723
$69,407,948
$4,680,325
$17,912,932
$4,079,557
$25,712,835
$112,760,155
$10,534,626
$36,921,223
$31,680,065
$4,084,998
$55,157,782
$4,891,993
$66,381
$193,289
$62,502
$2,302
$11,406,672
$1,039,975
$392,042
$2,136,629
$290,520
$1,411,330
$27,850
$522,629
$178,241
$4,279,810
$403
$967,080
$448,126
$392,213
$124,946
$56,722
$14,968,504
$4,168,700
$2,304,054
$3,263,532
$59
$211,943
$118,386
$1,191,278
$389,236
$0
$785,990
$0
$4,910,191
$266,555
$14,679
$2,569,914
$1,660,377
$2,336,082
$10,725
$11,038
$32,656
$32,461
$872,505
$544,459
$1,052,811
$2,639,038
$8,892
$285,731
$0
$1,335,253
$1,501,385
$248,824
$1,273,523
$32,922,681
$6,070,456
$2,686,252
$3,970
$482,298
$6,850,209
$28,297
$619,734
$33,450
$7,407,808
$6,738
$1,020,606
$1,187,191
$359,830
$2,356,699
$0
$1,992,567
$2,685,053
$10,256,133
$10,779,897
$0
$7,217,049
$1,522,589
$93,754
$1,177,947
$689,859
$904,566
$15,500
$16,132,328
$1,673,182
$164,227
$13,345,987
$5,258,178
$10,159,644
$1,695,022
$0
$475,660
$908,998
$2,020,961
$1,754,069
$3,560,589
$8,248,631
$0
$3,252,878
$0
$11,823,629
$6,095,907
$12,974,566
$5,412,022
$168,062,846
$14,515,067
$11,089,818
$2,136,629
$2,236,158
$34,442,622
$19,101,627
$5,036,156
$2,190,558
$42,889,924
$7,909,641
$6,484,147
$4,246,029
$9,499,690
$11,265,735
$2,306,026
$17,749,193
$13,853,875
$31,616,109
$18,702,864
$117,497
$15,157,591
$2,181,531
$3,593,718
$4,909,179
$7,122
$27,282,124
$5,600,442
$122,504,335
$21,316,986
$1,232,231
$57,686,802
$8,653,315
$39,689,227
$515,963
$14,126,901
$1,901,500
$11,454,862
$45,964,742
$4,593,987
$17,509,170
$17,195,454
$103,500
$26,635,774
$1,950,611
$22,182,494
$8,947,714
$25,686,514
$13,048,943
$387,533,153
$34,685,741
$22,653,197
$2,124,933
$5,376,767
$102,722,780
$55,092,020
$8,136,990
$6,320,315
$95,255,050
$17,597,185
$16,986,241
$10,082,442
$23,239,032
$24,780,715
$6,654,841
$36,656,993
$40,447,217
$60,679,175
$43,794,660
$16,344,183
$38,494,713
$5,080,964
$7,154,498
$13,734,365
$3,934,985
$55,703,498
$15,618,289
$266,648,330
$56,383,546
$2,383,884
$121,293,365
$36,517,791
$83,110,871
$6,573,693
$20,845,372
$4,861,369
$28,801,708
$120,334,236
$12,891,767
$41,981,662
$43,216,501
$4,358,681
$58,841,772
$5,142,179

table 18
While the cumulative amounts in the public

retirement systems in 1993 and 2002 remain useful,
the more relevant analysis involves reviewing the
compositional changes in the investment choices
made by the plan administrators. For instance, was
there a different role played by cash and deposits
versus securities in the two review periods? Similarly, which investment instrument played a more
dominant role in the calculations of plan administrators between the two review periods? Also, what
were the growth rates in the different retirement
systems between 1993 and 2002?
In terms of the cumulative amounts, not unexpectedly, the state and local government retirement
plans in the larger states had significant cash and
investment holdings with California ($387.5 billion)
leading the country followed by New York ($266.6
billion), Ohio ($121.3 billion), Texas ($120.3 billion)
and Florida ($102.7 billion). At the other end, the
five states with the lowest cash and investment holdings balances in 2002 were Montana ($5 billion),
South Dakota ($4.9 billion), West Virginia ($4.4
billion), New Hampshire ($3.9 billion) and North
Dakota ($2.4 billion). The District of Columbia
maintained a balance of $2.1 billion in this year.
In terms of growth rates in aggregate balances,
for the United States as a whole, there was a 134
percent increase in the cash and investment holdings of these state and local retirement systems, from
$921 billion in 1993, to $2.2 trillion in 2002. (See
Table 19, which describes securities as a percentage
of total holdings, for the percentage changes). Similarly, cash and investment holdings surged ahead in
every state with two states experiencing five-digit
growth rates (New Hampshire and Mississippi),
two states experiencing four-digit growth rates
(Rhode Island and West Virginia) and six states
experiencing double-digit growth rates (Alabama,
Alaska, Arizona, Hawaii, Michigan, Nebraska
and North Dakota). A majority of the states, 38
to be precise, experienced triple-digit growth rates
between the review periods.
four-fifths of the states were more the norm, and

even in this category, 37 of the 38 states had growth
rates between 100 percent and 199 percent.
In terms of changes in the composition of
investment instruments, Table 18 indicates that
there were three major types: cash and deposits;
securities; and other investments. Between the two
review periods, for the United States as a whole,
cash and deposits as a percentage of total holdings
declined from 7 percent in 1993 to 5 percent in
2002. The proportion of cash and deposits in total
cash and investment holdings declined in 35 states
between 1993 and 2002; they increased in 11 states;
and remained unchanged in four states. Among
the states with the highest proportion of cash and
deposits in 1993, North Carolina (29 percent), South
Carolina (21 percent) and Mississippi (17 percent)
ranked in the top three; in 2002, this type of investment instrument in these three states had shifted to
55 percent of the total in North Carolina, 14 percent
of the total in South Carolina and 11 percent of the
total in Mississippi. At the other end of the spectrum, for the three states with the lowest proportion
of cash and deposits in 1993, New Jersey (close
to zero percent),Wyoming and Wisconsin (both
at 1 percent), the proportion remained unchanged
by 2002 in both New Jersey and Wisconsin and
increased to 5 percent in Wyoming.
Another layer of analysis involves reviewing
the percentage of securities in total cash and investment holdings in these retirement systems between
1993 and 2002. Securities comprised government
and non-government securities.
Specifically,
government securities included United States
Treasury, other federal agency and state and local
government financial instruments. Non-governmental securities included corporate bonds, corporate stocks, mortgages, funds held in trust, foreign
and international securities and other instruments.
Table 19 captures the percentage breakdown of
securities as a percentage of total holdings in 1993
and 2002.
It should be noted that the states that experienced inordinately large increases in their cash
and investment holdings had relatively low levels
of holdings in 1993. New Hampshire, for instance,
had only $7.1 million in cash and investment holdings in 1993; in 2002, this amount had ballooned to
$3.9 billion, accounting for the staggering 55,151
percent increase. Similarly, Mississippi had only
$117.5 million in 1993; an amount that leapt to $16.3
billion in 2002. This amounted to an overwhelming
13,810 percent increase. As previously mentioned,
the triple-digit growth rates displayed in almost
Securities as a Percent of Total Cash & Investment Holdings 1993 and 2002
(Thousands of Dollars)
Securities
1993
United States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D.C.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Amount
774,314,992
10,092,708
5,703,277
11,743,094
4,790,227
135,413,948
12,687,175
9,879,452
1,759,312
0
30,290,278
18,282,826
4,054,650
1,878,661
33,517,828
7,611,912
5,380,027
3,711,372
7,942,299
9,928,854
2,069,227
2,238,913
9,013,805
24,156,839
14,876,873
96,898
14,050,509
2,010,188
2,362,315
4,243,691
6,666
26,473,979
5,208,931
112,468,861
14,962,927
1,171,977
49,846,025
5,219,814
6,092,055
35,374,256
486,744
11,133,997
1,573,804
11,163,182
42,567,460
3,842,892
791,641
14,498,634
13,554,331
84,303
26,066,062
1,939,293
2002
Percent
84%
85%
94%
91%
89%
81%
87%
89%
79%
0%
88%
96%
81%
86%
78%
96%
83%
87%
84%
88%
90%
13%
65%
76%
80%
82%
93%
92%
66%
86%
94%
97%
93%
92%
70%
95%
86%
85%
70%
89%
94%
79%
83%
97%
93%
84%
87%
83%
79%
81%
98%
99%
Amount
1,875,395,501
19,477,032
7,091,368
24,464,405
11,083,327
342,571,350
27,698,427
19,390,018
4,785,456
1,726,493
90800518
53,623,832
7,207,364
6099679
84,080,738
14,808,082
15,847,490
8376193
21,269,619
21,406,011
6,518,800
33109503
36,321,026
48,179,965
32,587,116
14,550,673
29229715
3,426,379
7014615
12,196,672
3,016,105
54,790,928
14,403,043
243434869
23,928,303
2,171,537
106,017,986
13,962,917
28,963,723
69407948
4,680,325
17,912,932
4,079,557
25,712,835
112,760,155
10,534,626
1939785
36,921,223
31,680,065
4,084,998
55,157,782
4,891,993

1993
Percent
87%
88%
79%
95%
85%
88%
80%
86%
89%
81%
88%
97%
89%
97%
88%
84%
93%
83%
92%
86%
98%
90%
90%
79%
74%
89%
76%
67%
98%
89%
77%
98%
92%
91%
42%
91%
87%
94%
79%
84%
71%
86%
84%
89%
94%
82%
88%
88%
73%
94%
94%
95%
Amount
920,571,814
11,823,629
6,095,907
12,974,566
5,412,022
168,062,846
14,515,067
11,089,818
2,236,158
2,136,629
34,442,622
19,101,627
5,036,156
2,190,558
42,889,924
7,909,641
6,484,147
4,246,029
9,499,690
11,265,735
2,306,026
17,749,193
13,853,875
31,616,109
18,702,864
117,497
15,157,591
2,181,531
3,593,718
4,909,179
7,122
27,282,124
5,600,442
122,504,335
21,316,986
1,232,231
57,686,802
6,137,798
8,653,315
39,689,227
515,963
14,126,901
1,901,500
11,454,862
45,964,742
4,593,987
908,614
17,509,170
17,195,454
103,500
26,635,774
1,950,611
Total
2002
Amount
2,157,990,956
22,182,494
8,947,714
25,686,514
13,048,943
387,533,153
34,685,741
22,653,197
5,376,767
2,124,933
102,722,780
55,092,020
8,136,990
6,320,315
95,255,050
17,597,185
16,986,241
10,082,442
23,239,032
24,780,715
6,654,841
36,656,993
40,447,217
60,679,175
43,794,660
16,344,183
38,494,713
5,080,964
7,154,498
13,734,365
3,934,985
55,703,498
15,618,289
266,648,330
56,383,546
2,383,884
121,293,365
14,836,796
36,517,791
83,110,871
6,573,693
20,845,372
4,861,369
28,801,708
120,334,236
12,891,767
2,216,826
41,981,662
43,216,501
4,358,681
58,841,772
5,142,179
Percent
Increase
134%
88%
47%
98%
141%
131%
139%
104%
140%
-1%
198%
188%
62%
189%
122%
122%
162%
137%
145%
120%
189%
107%
192%
92%
134%
13,810%
154%
133%
99%
180%
55,151%
104%
179%
118%
165%
93%
110%
142%
322%
109%
1,174%
48%
156%
151%
162%
181%
144%
140%
151%
4,111%
121%
164%
table 19
As indicated in Table 19, 27 states increased the

proportion of securities in their overall holdings, led
by Maryland, from 13 percent in 1993 to 90 percent in
2002; Massachusetts, from 65 percent to 90 percent;
and Nebraska, from 66 percent to 98 percent. There
were 22 states that lowered the proportion of securities in their overall portfolio, with some of the more
dramatic reductions occurring in North Carolina,
70 percent in 1993 to 42 percent in 2002; Montana,
92 percent to 67 percent; Missouri, 93 percent to
76 percent; Alaska, 94 percent to 79 percent; New
Hampshire, 94 percent to 77 percent; and Rhode
Island, 94 percent to 71 percent. Finally, one state,
Florida, maintained the proportion of securities in
its overall portfolio at the same rate (88 percent)
in both years. A possible explanation for the high
number of states that decreased the proportion of
securities in their cash and investment holdings
between 1993 and 2002 might involve the collapse
of the equity market by the end of 2002. As previously described, March 2000 signaled the end of the
roaring stock market of the 1990s when the equity
markets reached a nadir. Hence, administrators of
these retirement plans might have altered the investment mix of their plans to minimize future investment losses.
Table 20 provides a breakdown of government
and non-government securities, as a percent of total
cash and investment holdings, in the two years under
review. As previously indicated, government securities include United States Treasury, other federal
agency, and state and local government financial
instruments; non-government securities include
corporate bonds, corporate stocks, mortgages, funds
held in trust and other instruments, foreign and international securities, real property; and miscellaneous
investments.
As indicated in Table 20, for the United States
in general, the percentage of government securities
as a proportion of total cash and investment in public
sector retirement systems declined from 22 percent
in 1993 to 10 percent 2002. In contrast, the proportion of non-government securities increased from
62 percent in 1993 to 76 percent in 2002. Probing
further, Table 20 documents that 45 of the 50 states
decreased their exposure to government securities
between the two years. Four of the remaining
five states (New Jersey, Tennessee, Maryland and
Hawaii) actually increased their government securities exposure while one state (Alabama) did not
make a change. Of the aforementioned 45 states,
New Hampshire (from 56 percent to 4 percent),
Indiana (from 61 percent to 10 percent) and South
Carolina (from 61 percent to 18 percent) ranked
among the top states in terms of moving away from
government securities.
Percentage Breakdown of Government Securities vs.

Non-government Securities 1993 and 2002
United States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
DC
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Government
Securities
1993
2002
22%
10%
4%
4%
28%
7%
33%
18%
25%
8%
20%
9%
13%
4%
10%
2%
13%
2%
0
13%
35%
8%
27%
17%
61%
3%
16%
23%
29%
6%
2%
7%
17%
4%
40%
18%
4%
20%
29%
56%
0%
36%
21%
28%
14%
46%
28%
18%
27%
46%
61%
21%
27%
36%
23%
9%
12%
27%
31%
16%
19%
1%
7%
24%
18%
11%
11%
10%
1%
13%
7%
8%
0
11%
3%
11%
3%
14%
13%
0
14%
21%
4%
4%
22%
16%
0
1%
7%
15%
10%
4%
11%
18%
20%
31%
17%
12%
1%
7%
3%
15%
14%
18%
Non-government
Securities
1993
2002
62%
76%
81%
84%
66%
73%
58%
77%
63%
77%
60%
79%
75%
76%
79%
83%
66%
87%
0
75%
61%
73%
59%
62%
35%
80%
72%
61%
59%
84%
12%
59%
60%
75%
43%
75%
88%
46%
58%
38%
97%
57%
71%
42%
81%
40%
57%
53%
62%
49%
18%
62%
70%
57%
61%
78%
71%
52%
51%
81%
81%
80%
82%
73%
71%
86%
78%
74%
92%
70%
85%
78%
98%
79%
87%
69%
72%
75%
63%
67%
84%
68%
73%
95%
70%
76%
42%
90%
80%
79%
69%
79%
60%
68%
64%
59%
77%
70%
87%
81%
71%
79%
79%
77%
table 20

On the other hand, 42 states (and the District

of Columbia) enlarged the proportion of nongovernment securities in their cash and investment
holdings between the two periods. Of these 42
states, among the top states were Maryland (from
12 percent to 79 percent), South Carolina (from 18
percent to 68 percent) and Ohio (from 40 percent
to 80 percent). The District of Columbia increased
its non-government security exposure from zero to
80 percent. Interestingly, seven states diminished
their non-government securities exposure during
these two review periods with Montana (from 88
percent to 67 percent), Missouri (from 75 percent
to 63 percent) and Tennessee (from 70 percent to
59 percent) ranking high in this category. One state
(North Carolina) did not change its non-government securities proportion between the two years.
It should be noted that given that the nations equity
markets began their downward trajectory path in
March 2000, it is possible that these seven states
were responding to this trend by lowering their
exposure to this type of investment instrument.
Revenues of State and Local

Government Employee Retirement
Systems
A discussion of state and local government

retirement systems has to include reference to
the revenues and expenditures of these plans. In
terms of revenues, these retirement systems operate
on three sources: contributions from employees,
contributions from governments (employers), and

earnings on investments.10 Employee contributions
to state government systems include funds from
state employees and local government employees,
if applicable. (If the local government collects and
transmits an amount for its employees to a state
system, the local government is considered an agent
of the state government, and these funds are treated
as direct receipts of the state retirement system.)
Government contributions include amounts, as
applicable, from the administering government for
its own or other governments employees and from
other governments. State-administered systems
totals might include state contributions for state
employees or local employees, and local government contributions for local employees. The local
systems have the potential to include amounts from
the administering government, other local governments, and the state government. The investment
earnings category for each retirement system reflects
the gain and loss on investments during the year.
The total of net earnings is a calculated statistic
and thus could be positive or negative, depending
on the detailed measures (dividends, gain on sale of
investments, losses on sales of investments and so
forth). The revenues for state and local government
retirement systems in 2002 are included in Table
21. (Appendix C provides this information splitting revenues between state government and local
government entities, where applicable.)
Revenues for State and Local Government Retirement Systems in 2002 (Thousands of Dollars)
State and Level
of Government
United States
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total Receipts
-6,120,528
-1,011,599
876,818
-328,612
-4,771,180
-2,189,064
1,650,372
204,212
-857,361
-260,142
-135,387
2,744,231
627,351
-210,081
425,732
262,228
948,709
34,521
507,772
714,382
2,070,275
34,851
-170,529
116,370
-152,689
432,809
-106,524
-3,989,666
336,601
2,823,189
1,273,416
209
2,591,422
247,925
-695,041
-3,147,915
-119,111
1,283,558
-108,220
234,169
-1,952,484
-252,308
-24,951
-1,701,464
-2,046,087
453,246
-2,429,082
-93,634
Employee
Contributions
27,544,022
417,681
302,143
82,969
5,367,697
490,132
325,472
41,038
504,794
55,451
124,637
2,022,313
258,653
207,315
207,909
561,670
550,178
130,363
276,935
1,260,284
724,481
538,684
319,210
117,100
139,672
53,958
103,842
886,305
249,665
1,519,301
847,471
37,099
2,156,400
329,088
425,864
1,109,361
157,238
472,691
68,226
224,058
2,372,759
31,105
34,810
185,191
267,363
131,995
23,123
56,644
From State
From Local
Total
Government Government
38,792,031
17,182,861
21,609,170
436,786
338,580
98,206
266,308
51,402
214,906
345,702
128,272
217,430
4,938,283
1,724,542
3,213,741
586,418
190,123
396,295
728,876
631,956
96,920
101,645
90,554
11,091
1,087,785
778,081
309,704
167,459
54,742
112,717
216,737
71,989
144,748
2,659,475
1,553,960
1,105,515
974,536
800,787
173,749
321,104
75,243
245,861
229,609
161,911
67,698
436,858
408,838
28,020
919,886
748,556
171,330
423,858
423,858
0
753,619
588,975
164,644
1,454,267
839,209
615,058
1,036,728
301,031
735,697
665,906
177,560
488,346
436,882
171,374
265,508
135,075
46,507
88,568
169,110
51,271
117,839
680,428
163,685
516,743
84,147
37,068
47,079
308,542
20,094
288,448
381,891
178,198
203,693
1,941,653
92,819
1,848,834
440,675
242,267
198,408
60,683
13,696
46,987
2,889,532
985,786
1,903,746
657,533
481,961
175,572
1,090,818
257,726
833,092
414,021
127,483
286,538
171,881
71,499
100,382
607,513
238,566
368,947
62,969
21,787
41,182
460,080
263,866
196,214
2,642,686
1,534,215
1,108,471
397,951
343,677
54,274
52,194
49,175
3,019
1,068,541
280,114
788,427
387,349
100,063
287,286
431,583
91,812
339,771
976,367
256,078
720,289
61,529
12,922
48,607

Earnings on
Investments
-72,456,581
-1,866,066
308,367
-757,283
-15,077,160
-3,265,614
596,024
61,529
-2,449,940
-483,052
-476,761
-1,937,557
-605,838
-738,500
-11,786
-736,300
-521,355
-519,700
-522,782
-2,000,169
309,066
-1,169,739
-926,621
-135,805
-461,471
-301,577
-294,513
-5,184,513
-294,955
-637,765
-14,730
-97,573
-2,454,510
-738,696
-2,211,723
-4,671,297
-448,230
203,354
-239,415
-449,969
-6,967,929
-681,364
-111,955
-2,955,196
-2,700,799
-110,332
-3,428,572
-211,807
table 21
Based on Table 21, several trends may be

assumed from the revenue information for 2002.
For the nation as a whole, total receipts were in
negative territory (-$6.1 billion) as were earnings
on investments (a whopping -$72.5 billion). The net
loss on earnings on investments was a clear reflection of the pounding taken by the equity markets
during this time period along with the reductions
in the contributions made by both state and local
governments to their employee retirement systems.
Specifically, California experienced the
biggest loss in total receipts during 2002 (-$4.8
billion) followed by New Jersey (-$4 billion) and
Pennsylvania (-$3.1 billion). At the other end of
the spectrum, New York ($2.8 billion), Illinois
($2.7 billion) and Ohio ($2.6 billion) were the
three states with the highest total receipts during
the review period. While 24 states and the District
of Columbia saw their total receipts plunge into the
negative column, the remaining 26 states saw their
total receipts in positive territory with seven states
securing more than $1.2 billion (the aforementioned New York, Illinois and Ohio were joined by
Michigan, Connecticut, South Carolina and North
Carolina).
Another layer of analysis flowing from Table
21 involves government contributions to these
retirement plans, particularly state government
contributions. As will be shown in a subsequent
analysis, state government contributions declined
in 2002 to $17.2 billion from $17.5 billion in 2000.
Total government contributions (state government
contributions plus local government contributions)
also declined between these two years from $40.2
billion in 2000 to $38.8 billion in 2002. The three

state governments making the least amount of
contributions to their retirement systems in 2002
were Wyoming ($12.9 million), North Dakota
($13.7 million) and New Jersey ($20.1 million).
Conversely, Texas ($1.5 billion), Illinois ($1.6
billion) and California ($1.7 billion) were the three
states with highest level of contributions in 2002.
Finally, a vast number of states (45 of the 50
states) experienced negative earnings on investment
during 2002. With the exception of Delaware ($61.5
million), South Carolina ($203.4 million), Arizona
($308.4 million), Michigan ($309.1 million) and
Connecticut ($596 million), these remaining 45
states (and the District of Columbia) all experienced losses in their earnings on investments. The
three states experiencing the greatest losses in this
category were California (-$15.1 billion), Texas (-$7
billion) and New Jersey (-$5.2 billion). Furthermore, there were 17 states that experienced losses
totaling over $1 billion, 25 states and the District of
Columbia with losses between $1 billion and $100
million, and three states with losses below $100
million.
While the snapshot of 2002 remains useful,
a comparison with an earlier year remains even
more instructive. Table 22 provides a breakdown
of the percentage changes between key revenue
criteria for 2000 and 2002. Keeping in mind that
March 2000 signaled the end of an extended runup in the nations equity markets, consequently, the
extremely positive figures for 2000 will reflect this
salubrious trend.
Revenues of State and Local Government

Retirement Systems Percentage Differences in
Selected Criteria between 2000 and 2002
Government
Entity
United States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D.C.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Source:
Total
Receipts
-102%
-134%
-146%
-50%
-120%
-111%
-146%
-27%
-75%
-192%
-100%
-111%
-125%
-112%
-81%
-69%
-117%
-79%
-95%
-79%
-97%
-89%
-89%
-81%
-99%
-107%
-92%
-79%
-124%
-74%
-113%
-151%
-88%
-92%
-82%
-100%
-83%
-89%
-112%
-126%
-109%
-31%
-117%
-93%
-110%
-111%
-108%
-122%
-130%
-43%
-122%
-103%
State
Government
Contributions
-2%
-1%
-9%
8%
3%
45%
-15%
43%
288%
0%
-43%
-13%
648%
15%
18%
2%
17%
22%
-20%
2%
64%
-27%
-12%
-20%
4%
1%
1%
12%
12%
10%
17%
-90%
12%
-17%
-66%
9%
-6%
21%
-5%
-57%
-8%
-26%
-1%
-2%
10%
186%
15%
-24%
-41%
15%
2%
31%
Earnings on
Investments
-131%
-184%
-182%
-76%
-154%
-143%
-190%
-58%
-92%
-509%
-124%
-143%
-149%
-156%
-120%
-175%
-204%
-101%
-119%
-116%
-177%
-116%
-155%
-97%
-123%
-156%
-131%
-142%
-229%
-130%
-145%
-177%
-114%
-102%
-100%
-139%
-123%
-149%
-152%
-146%
-142%
-77%
-145%
-115%
-147%
-137%
-146%
-148%
-147%
-136%
-133%
-107%
table 22
U.S. Department of Commerce, Bureau of the Census
While Table 21 provides a snapshot of trends

in 2002, Table 22 affords a comparison between a
time when the U.S. economy (and equity markets)
were in ascent (2000) and when both the national
and state economies and stock markets were mired
in despair (2002). Total receipts plunged from $297
billion to a -$6.1 billion, a decline of 102 percent.
Similarly, every state and the District of Columbia
experienced a decline in total receipts between
these two periods, with 26 states seeing triple-digit
declines and the remaining 24 seeing double-digit
declines. At the front of the list were New Jersey
(151 percent), Alaska and Colorado (both at 146
percent) and Alabama (134 percent). The three
states that experienced the lowest declines in total
receipts were Connecticut (27 percent), South Carolina (31 percent) and West Virginia (43 percent).
State government contributions to public sector
retirement systems, for the country as a whole,
declined between 2000 and 2002. As noted earlier,
these contributions declined nominally (2 percent)
from $17.5 billion to $17.2 billion. There were 21
states that experienced declines, with the remaining
29 states displaying increases in their state government contributions. Fourteen of the 21 states saw
double-digit declines, while the remaining seven
experienced declines in the single-digits between
these two years. Among the 29 states that increased
their retirement system contributions, nine displayed
single-digit growth rates, 17 displayed double-digit
growth rates and three displayed triple-digit growth
levels. The three states included in the latter category were Hawaii (648 percent), Delaware (288
percent) and Utah (186 percent). In contrast, the
states that experienced the steepest drop-off in their
state government contributions were New Jersey
(-90 percent), North Carolina (-66 percent) and
Pennsylvania (-57 percent).
The final level of analysis involves a comparison of the earnings on investments of states between
2000 and 2002. For the nation, cumulatively, the
decline was a staggering -131 percent, as earnings on
investment plummeted from $231.9 billion in 2000
to the woeful -$72.5 billion in 2002. Every state in
the country and the District of Columbia saw net
declines in their earnings on investments between
the two years. While an overwhelming majority of
the states and the District of Columbia saw tripledigit declines (45 states), the remaining five states
experienced double-digit declines. Nebraska (-229
percent), Iowa (-204 percent) and Colorado (-190
percent) were the states with the sharpest declines
while Connecticut (-58 percent), Arizona (-76
percent) and South Carolina (-77 percent) occupied
the other end of this continuum.
Expenditures of State and

Local Government Employee
Retirement Systems
The remaining component of an analysis of state and local government retirement systems involves the expenditures
incurred by these plans. As in the case
of revenues, expenditures fall into three
categories: benefits paid; withdrawals; and
other payments. The benefits column refers
to the periodic and ongoing disbursements
made from the systems to eligible recipients. These disbursements account for the
largest share of total payments from public
retirement systems. Withdrawals usually
are one-time payments that include the
return of contributions made by employees
during the period of their employment,
accrued interest and, in some instances, a
portion of employer contributions. Finally,
the category of other payments covers
direct administrative costs and related
incidental payments. Table 23 provides
data for the expenditures incurred by these
state and local government retirement
systems in 2002. (Appendix D provides
this information splitting expenditure levels
for state and local government plans, where
applicable.)
As demonstrated in Table 23, total
disbursements/payments out of state and
local government retirement systems experienced a significant increase from 2000 to
2002, from $100.5 billion to $122 billion or
about 21 percent. (In contrast, in 1993, these
retirement funds disbursed a significantly
lower amount, $52.6 billion) Of the amount
expended in 2002, $110.1 billion involved
benefits (90 percent of total payments), $4.1
billion involved withdrawals (3 percent of
total) and $7.8 billion (7 percent) involved
other payments.
In terms of the specifics, the three
states that made the largest payments
in 2002 were California ($19.7 billion),
New York ($14.6 billion) and Texas ($7.1
billion). These three states rank at the
highest level in terms of economic magnitude and population size in any national
survey. At the other end of the spectrum for
the same year, Vermont ($128.7 million),
North Dakota ($136 million) and Wyoming
($181.6 million) had the lowest payments.
Twenty states made total payments that
amounted to less than $1 billion. Benefit
State and Local Government Retirement System

Expenditures in 2002 (Thousands of Dollars)
State and
Level of
Other
Government Total Payments Benefits Withdrawals Payments
United States
121,980,231 110,128,411
4,079,492 7,772,328
Alabama
1,506,603 1,355,268
73,565
77,770
Alaska
564,947
525,509
11,699
27,739
Arizona
1,436,481 1,285,414
67,491
83,576
Arkansas
678,906
587,385
4,747
86,774
California
19,707,143 16,528,221
595,254 2,583,668
Colorado
2,077,658 1,702,584
131,478
243,596
Connecticut
1,800,360 1,757,059
17,423
25,878
Florida
3,882,518 3,605,427
26,435
250,656
Georgia
2,292,563 2,149,640
54,703
88,220
Hawaii
624,844
530,381
38,422
56,041
Idaho
328,253
294,507
0
33,746
Illinois
6,532,865 5,958,615
197,804
376,446
Indiana
1,142,642 1,051,629
40,987
50,026
Iowa
905,686
800,166
38,837
66,683
Kansas
749,309
668,283
40,349
40,677
Kentucky
1,580,726 1,419,658
27,428
133,640
Louisiana
2,171,212 1,912,818
104,151
154,243
Maine
430,899
396,399
15,822
18,678
Massachusetts
3,139,905 2,742,561
233,435
163,909
Michigan
4,229,763 3,788,630
183,668
257,465
Minnesota
2,654,774 2,540,089
46,693
67,992
Mississippi
1,000,098
866,521
62,227
71,350
Missouri
1,953,769 1,775,899
71,970
105,900
Montana
305,278
275,790
18,436
11,052
Nevada
601,224
533,392
15,835
51,997
New Hampshire
296,743
249,492
15,356
31,895
New Jersey
4,114,425 3,981,046
99,327
34,052
New Mexico
757,170
690,879
54,135
12,156
New York
14,624,044 13,862,445
277,262
484,337
North Carolina
2,342,334 2,201,260
128,916
12,158
Ohio
6,860,639 6,249,846
377,748
233,045
Oklahoma
1,180,547 1,035,523
73,292
71,732
Oregon
2,035,309 1,754,195
46,107
235,007
Pennsylvania
5,605,042 5,058,181
64,412
482,449
Rhode Island
572,465
536,756
9,393
26,316
South Carolina
1,400,946 1,296,507
75,389
29,050
South Dakota
211,763
175,171
22,400
14,192
Tennessee
1,255,948 1,155,601
29,480
70,867
Texas
7,085,742 6,522,740
387,057
175,945
Utah
469,072
444,621
7,438
17,013
Vermont
128,685
94,477
2,514
31,694
Virginia
2,063,711 1,831,758
81,937
150,016
Washington
1,974,828 1,761,040
79,964
133,824
West Virginia
508,633
476,170
16,716
15,747
Wisconsin
3,161,456 2,947,724
32,743
180,989
Wyoming
181,612
161,048
10,735
9,829
table 23

payments, or periodic and ongoing disbursements

made to eligible beneficiaries, accounted for the
bulk of these total expenditures; between 2000 and
2002, 47 states saw double-digit growth rates in this
category. Florida (53 percent), South Carolina (47
percent) and Wisconsin (42 percent) were the states
with the three highest growth rates, while New
York (8 percent) and Ohio and Washington (both
at 9 percent) had the lowest growth rates in benefit
payments between 2000 and 2002.
A review of the percentage changes between
2000 and 2002 in the categories of total payments
and total receipts remains another useful level of
analysis and Table 24 carries out this task.
The setbacks that ensnared the economy in the
early years of this decade are amply demonstrated
in the 2002 data presented in Table 24. In particular, this year saw an upsurge in the expenditures
incurred by state and local government retirement
systems while revenue inflows plummeted. For the
United States as a whole, the 21 percent increase
in the level of payments (benefits, withdrawals and
other) was eclipsed by the 102 percent decline in
revenue inflows (employee contributions, government contributions and earnings on investments).
As expected, certain states faced a larger spread
between these receipts and expenditures than
others; only a single state, South Carolina, saw its
receipts exceed payments, i.e., a positive spread. As
depicted in Table 24, the remaining 49 states and
the District of Columbia all experienced a negative
spread between inflows and outflows.
Of the 49 states with a negative spread, 12
were in triple-digit territory; 36 were in the doubledigit column; and one state was in the single-digit
category. Of the states with double-digit negative
spreads between receipts and expenditures, 33 were
above negative 50 percent. Alaska (-132 percent),
New Jersey and Washington (both at -125 percent)
were the three states with the highest shortfall
between total payments and total receipts between
2000 and 2002. Similarly, the three states with the
smallest differential between total payments and
receipts for the review period were Connecticut (-7
percent), Arizona (-20 percent) and West Virginia
(-24 percent). As mentioned earlier, South Carolina (12 percent) was the only state with a positive
spread.
Percentage Differences in Total Payments,

Total Receipts and Benefits Between 2000 and 2002
State
United States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D.C.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total
Payments
21%
23%
14%
30%
23%
31%
37%
20%
23%
59%
50%
35%
13%
19%
18%
10%
22%
10%
26%
13%
-10%
14%
19%
16%
17%
39%
33%
18%
18%
31%
24%
26%
9%
10%
19%
2%
11%
13%
8%
23%
25%
43%
15%
18%
26%
13%
28%
17%
5%
19%
43%
19%
Total
Receipts
-102%
-134%
-146%
-50%
-120%
-111%
-146%
-27%
-75%
-192%
-100%
-111%
-125%
-112%
-81%
-69%
-117%
-79%
-95%
-79%
-97%
-89%
-89%
-81%
-99%
-107%
-92%
-79%
-124%
-74%
-113%
-151%
-88%
-92%
-82%
-100%
-83%
-89%
-112%
-126%
-109%
-31%
-117%
-93%
-110%
-111%
-108%
-122%
-130%
-43%
-122%
-103%
Spread
(Payments/
Receipts)
-81%
-111%
-132%
-20%
-97%
-80%
-109%
-7%
-51%
-133%
-50%
-76%
-112%
-93%
-62%
-60%
-96%
-69%
-69%
-66%
-107%
-74%
-69%
-65%
-82%
-68%
-58%
-61%
-106%
-44%
-89%
-125%
-78%
-81%
-62%
-98%
-72%
-76%
-104%
-103%
-83%
12%
-102%
-76%
-84%
-98%
-80%
-105%
-125%
-24%
-79%
-84%
Benefits
21%
18%
14%
33%
25%
22%
26%
21%
25%
89%
53%
38%
13%
19%
21%
12%
31%
13%
27%
15%
15%
15%
17%
16%
24%
38%
34%
19%
18%
27%
34%
27%
19%
8%
21%
21%
9%
12%
17%
19%
29%
47%
23%
18%
28%
22%
18%
22%
9%
19%
42%
21%
table 24
Chapter 5
Analysis of Information in The Council
of State Governments (CSG) Southern
Office Survey
long with the data extracted from the federal government, another important source of information for the trends assessed in this report was obtained by a survey forwarded to 190 state and
local government retirement plans in the 50 states and the District of Columbia. The survey (see
Appendix A for a copy) comprised five questions that sought the latest information on the market
value of the individual plan, the number of actives and annuitants in the plan and the extent of each plans
actuarial assets and liabilities. In the analysis of the survey information, the tables in this section present
the top and bottom five plans for each category while the complete listing of plan information is contained
in the reports appendices.
Analysis of Information in CSG Survey
As indicated in the methodology section, the

survey elicited responses from 105 of the 190 plans
contacted (55 percent), with at least one plan in 46
of the 50 states providing responses to the questionnaire. In breaking down the responses, four major
issue areas were identified: the market value of the
plans assets; annuitants as a percentage of actives;
actuarial funding ratio; and the specific unfunded
liability or surplus. This information is provided in
the following four tables.
Market Value of Assets
In describing the market value of the plans
assets, a number of important points must be specified at the outset. For instance, there is a great deal
of variation among public pension systems and
market value asset comparisons remain meaningless unless accompanied by more detailed information. Such factors as payment benefits, contribution
rates, number of actives, number of annuitants,
asset allocation strategies and fiscal year-end dates
all contribute toward this tremendous degree of
variety; consequently, no two systems are alike.
Even a simple statistic like the date on which a
plans annual audited financial statement is based
has huge implications for the market value of a
plans assets. In this connection, information from
the Pennsylvania Public School Employees Retirement System (PSERS) illustrates how no two
systems are alike.1 Accordingly, PSERS fiscal
year ends on June 30 every year, and for the annual
audited financial statement for the year ending
June 30, 2003, PSERS had a market value of $42.5

billion; by December 2003, the markets had started
to rebound and PSERS market value reached $47.3
billion. This is one such instance where the differences in the review periods resulted in very different
conclusions regarding the market value of a public
pension funds assets.
The purpose of Table 25 (and Appendix E) is
not to identify certain plans as having a low asset
base or others as having a large asset base, but to
provide an overview of the asset values of the plans
from the survey responses. Beyond that, given the
radically different variables in calculating these
market values, this report will not make any other
conclusions. As indicated earlier, Table 25 contains
the five plans with the smallest and largest market
asset values. Appendix E contains information on
all the plans that provided information to this survey
question.
Table 25 provides the market value of the
assets for the five plans with the lowest and highest
values. Appendix E provides information for the
105 plans that responded. Of these, one, the Texas
Judicial Retirement System Plan I, did not provide
the market value of its assets. This lowered the
number of plans with market asset information
from 105 to 104. Of these 104 plans, there was a
single plan with a market value less than $1 million
(Georgias Military Pension Fund); 10 plans with
a market value greater than $1 million dollars but
Five Plans with Lowest and Highest Market Value of Assets
h i g h e s t l o w e s t
Rank
105
104
103
102
101
5
4
3
2
1
State
GA
NJ
AK
WA
AK
WI
NY
TX
FL
CA
Plan Name
Georgia Military Pension Fund
State Police Retirement System
Teachers Retirement System
Judges Retirement System, See Note B
Public Employess Retirement Board
Wisconsin Retirement System
Florida Retirement System, See Note J
California Public Employees Retirement
System, See Note K

Value
Date
$626,000
Jun-03
$1,545,700
Jun-03
$3,602,619
Jun-03
$5,000,000
Sep-02
$7,391,455
Jun-03
$62,829,000,000
Dec-03
$72,400,000,000
Jun-03
$79,122,010,645
Aug-03
$100,200,000,000
Mar-04
table 25
$161,378,337,000
Dec-03
Source: The Council of State Governments Southern Office Survey

Note B: For this Washington state plans actuarial liability, the Present Value of Fully Projected Benefits (PVFPB) is
presented.
Note J: This is based on the market value as of March 25, 2004.
Note K: Data for CalPERS includes the Californina Public Employees Retirement System; the Legislators
Retirement System; Judges Retirement System I; Judges Retirement System II; State Peace Officers
and Firefighters Defined Contribution Program; and the Volunteer Firefighters Length of Service Award
System.
less than $100 million; 20 plans greater than $100

million but less than $1 billion; 35 plans greater
than $1 billion but less than $10 billion; 36 plans
greater than $10 billion but less than $100 billion;
and, finally, two plans, with an asset base greater
than $100 billion.
Not surprisingly, the California Public
Employees Retirement System (CalPERS) was the
system with the largest market value with $161.4
billion as of December 2003, with the Florida Retirement System coming in second in this category with
$100.2 billion in market value as of late March 2004.
A number of other plans also had significant assets
such as Texas Teachers Retirement System ($79.1
billion as of August 2003) and New Yorks Teachers
Retirement System ($72.4 billion as of June 2003).
However, as noted at the outset of this section,
given the widely divergent variables contributing
to the market value of public pension system assets,
this report does not draw any conclusions in this
connection.
Annuitants as a Percentage of Actives
Table 26 provides details from survey
responses on two member categories: actives and
annuitants. Specifically, actives include members
who are working and contributing (or their employer
makes contributions on their behalf) toward a public
pension plan. Annuitants comprise members who
are receiving a regular benefit from these public
pension systems and include retired employees,
spouses, survivors, family members and others

named as beneficiaries.
A meaningful statistic that might be extrapolated from data on annuitants and actives is the
number of annuitants as a percentage of actives.2
A lopsided ratio where the number of annuitants
significantly exceeds the number of actives poses a
variety of financial demands on the plans finances.
In this scenario, the demands on the liquidity levels
of the pension plans to meet current obligations
are much greater, forcing plans to maintain assets
that are much more liquid. A corollary of a higher
liquidity requirement requires that the pension plans
maintain a higher percentage of their assets in cash
and similar low-yielding securities to make the
periodic benefit payments. Furthermore, increasing
demands to preserve a greater proportion of assets
in cash and low-yielding securities triggers its own
set of negative consequences on the pension plans
long-term investment returns.
Once again, information on the five plans with
the lowest and highest percentage of annuitants as
a percentage of actives is presented in Table 26.
Five Plans with Lowest and Highest Annuitants as a Percentage of Actives

Number of Actives
State
Plan Name
Number
Date
Number of Annuitants
Number
Date
Annuitants
as % of
Actives
WA
School Employees Retirement System - Plans 2 & 3
49,791
Sep-02
622
Sep-02
1.2%
WA
Law Enforcement Officers and Firefighters Retirement System - Plan 2
14,011
Sep-02
244
Sep-02
1.7%
WA
Teachers Retirement System - Plans 2 & 3
53,607
Sep-02
1,106
Sep-02
2.1%
NV
Deferred Compensation Plan
6,857
Mar-04
248
Mar-04
3.6%
DE
State of Delaware Employees Deferred Compensation Plan
WA
Teachers Retirement System - Plan 1
WA
Judicial Retirement System
WA
Law Enforcement Officers and Firefighters Retirement System - Plan 1
WA
Judges Retirement System
TX
Judicial Retirement System - Plan I
8,000
Apr-04
327
Apr-04
4.1%
12,456
Sep-02
33,148
Sep-02
266.1%
545.8%
24
Sep-02
131
Sep-02
1,147
Sep-02
7,987
Sep-02
696.3%
Sep-02
18
Sep-02
1,800.0%
26
Aug-03
505
Aug-03
1,942.3%
table 26
Source: The Council of State Governments Southern Office Survey.

Note: In their responses, six plans did not provide either the number of annuitants or the number of actives in their systems.
Hence, it was impossible to calculate the percentage of annuitants as a percentage of actives for these six plans. This
lowered the number of plans for which information is presented in Appendix F from 105 plans to 99 plans.
Appendix F contains this information for the 105

plans that responded to the survey.
In terms of the number of annuitants as a
percentage of actives (see Appendix F), a vast
majority of the plans (70 of the 99 plans) fell
between 20 percent and 69.9 percent. In terms of
specifics, New Mexicos State Deferred Compensation Plan (22.8 percent) and Washington State
Patrol Retirement System (69.4 percent) occupied
the two extremes of this grouping. With respect to
the plans remaining from the total 99 plans, seven
plans were in the 1 percent to 9.9 percent grouping
and there were an additional four plans in the 10
percent to 19.9 percent grouping. In this connection Washingtons School Employees Retirement
System (Plans 2 and 3), with 1.2 percent, and
Texas Municipal Retirement System, with 19.4
percent, were the book-ends for these two groupings combined. Finally, there were 10 plans in the
70 percent to 99.9 percent category, and eight plans
over 100 percent. It should be noted that the final two
plans on the list, Washingtons Judges Retirement
System and Texas Judicial Retirement System Plan
1, had unusually large percentages: 1,800 percent
and 1,942 percent, respectively. This is because the
former plan has only one active participant and the
latter has only 26 active participants.
Actuarial Funding Ratio
An often cited statistic in a review of public
pension plans revolves around the actuarial funding
ratios of these plans. This measure is derived by
dividing the actuarial value of a pension plans
assets by its actuarial liabilities. When a pension
plans assets equal its liabilities, it is considered
funded at 100 percent. Similarly, a plan containing
a deficit in assets has an unfunded liability and this

plan is then considered underfunded. (Analysts
also have contended that a pension plan only is
considered underfunded when its obligations, i.e.,
what it owes to retirees, exceeds it assets by at least
10 percent.3)
All pension plans, both fully funded and underfunded, rely on future contributions and investment
returns to make their benefit payments. A fully
funded plan has been compared to a long-term mortgage where a homeowner has a specified number
of years to pay down the loan and eventually own
the house. At the end of this period, when it is paid
off, the mortgage would be considered fully funded.
Hence, it is important to specify that a fully funded
plan does not entail that future contributions to the
plan are unnecessary; to the contrary, a fully funded
plan only means that at a particular time, the actuarial value of the assets equaled the actuarial value of
the liabilities. Notwithstanding this, future contributions and investment earnings remained critical to
meet the benefit obligations that the plan continued
to accrue and will have to meet in the future.
In contrast, underfunded plans require future
contributions and investment earnings to make
up the shortfall so as to maintain their financial
viability. A major difference between a fully funded
plan and an underfunded plan is that with regard
to the latter, future contributions and investment
earnings perform the dual task of both bridging the
shortfall between assets and liabilities and funding
benefit obligations that are being accrued. Fully
funded plans, however, only finance the benefits
currently being accrued.
Five Plans with Lowest and Highest Actuarial Funding Ratio

Actuarial Assets
State
WA
WV
IL
IL
IL
TX
WA
GA
GA
ID
Plan Name
Teachers Retirement System (Defined Benefit)
General Assembly Retirement System
Teachers Retirement System of Illinois
Judicial Retirement System - Plan II
Law Enforcement Officers and Firefighters
Retirement System - Plan 1
Legislative Retirement System
Georgia Judicial Retirement System
Public Employee Retirement System of Idaho
Actuarial Liabilities
Value
$8,000,000
$1,190,882,000
$49,676,302
$330,053,560
$23,124,823,000
$129,425,907
Date
Sep-02
Jun-03
Jun-03
Jun-03
Jun-03
Aug-03
Value
$95,000,000
$6,243,834,000
$196,510,067
$1,076,231,965
$46,933,432,000
$111,115,600
Date
Sep-02
Jun-03
Jun-03
Jun-03
Jun-03
Aug-03
Actuarial
Funding
Ratio
8.4%
19.1%
25.3%
30.7%
49.3%
116.5%
$5,095,000,000
$26,637,000
$228,417,000
$6,498,685,238
Sep-02
Jun-02
Jun-02
Jul-03
$4,338,000,000
$21,779,000
$175,154,000
$534,638,594
Sep-02
Jun-02
Jun-02
Jul-03
117.5%
122.3%
130.4%
1,215.5%
table 27

Note: Twelve plans did not provide information on their actuarial assets and/or actuarial liabilities. Hence, it was
impossible to calculate an actuarial funding ratio for these 12 plans. This lowered the number of plans for which
information is presented in Appendix G from 105 plans to 93 plans.
Analysts are quick to point out that while a

plans actuarial ratio is an indicator of its financial
health, its overall impact should not be overstated.
These calculations, as expressed earlier, involve
many demographic and financial assumptions that
vary from plan to plan. In effect, the ratio is a
snapshot of where a plan stands at a particular time
given its own set of unique circumstances. The
fact that a plans obligations extend years into the
future--unless a plan is terminated--provides it with
opportunities to accrue assets and meet its contractual obligations.
As in the previous categories, Table 27 presents information on the five plans with the lowest
and highest actuarial funding ratios. Appendix
G provides information for the 105 plans that
responded to the survey.
Of the 93 plans for which information was
provided, five plans had an actuarial funding ratio
between 1 percent and 49.9 percent; 63 plans had an
actuarial funding ratio between 50 percent and 99.9
percent; and 25 plans had an actuarial funding ratio
equal to or greater than 100 percent. Interestingly,
there were eight plans that had an actuarial funding
ratio of 100 percent, i.e., their actuarial assets
equaled their actuarial liabilities. Consequently,
while 25 of the 93 plans that provided this set of
information had an actuarial ratio that was fully
funded, the remaining 68 plans were underfunded
to varying degrees.
Idahos Public Employee Retirement System
had the highest actuarial funding ratio of 1,215
percent given that the plan had actuarial assets
of $6.5 billion and actuarial liabilities of a mere

$535.6 million. At the other end of the spectrum,
Washingtons Judicial Retirement System had an
actuarial funding ratio of 8.4 percent given that this
plans actuarial assets stood at $8 million and actuarial liabilities stood at $95 million.
Actuarial Unfunded Liability or Surplus Amount
The companion statistic to the actuarial
funding ratio is the unfunded liability or surplus
amount, presented in Table 28. Once again, the
five plans with the highest unfunded liability or
surplus are presented. Appendix H has information
on this category for the 105 plans that responded. As
indicated, a majority of the survey responses rank
in the underfunded category with only 17 of these
plans actually recording a surplus.
According to Table 27, as previously noted,
since 12 of the 105 plans did not provide information on their actuarial assets and liabilities, it was
impossible to calculate either the unfunded liability
or surplus for these plans. Of the remaining 93 plans
reviewed, 17 plans had an actual surplus. While
the $12.6 billion in the Florida Retirement System
was the largest for the plans available, Idahos
Public Employee Retirement System ($5.9 billion),
North Carolinas Retirement Systems ($3.3 billion)
and Pennsylvanias State Employee Retirement
System ($1.3 billion) also were important here.
New Jerseys State Police Retirement ($49,000)
and the Washington State Patrol Retirement System
($3 million) were the two plans at the other end of
plans with a surplus.
l o w e s t h i g h e s t
Five Plans with Highest and Lowest Actuarial Unfunded Liability or Surplus Amount
State
FL
ID
NC
PA
WA
MA
CA
CO
OH
IL
Plan Name
Florida Retirement System
North Carolina Retirement Systems
State Employees Retirement System
Law Enforcement Officers and Firefighters
Retirement System - Plan 1
Massachusetts Teachers Retirement System
California Public Employees Retirement System
Public Employees Retirement Association
State Teachers Retirement System
Teachers Retirement System of Illinois
Actuarial Assets
Value
Date
$101,900,000,000
Jul-03
$6,498,685,238
Jul-03
$55,183,599,877 Dec-02
$27,465,000,000 Dec-03
$5,095,000,000
$17,074,650,000
$156,067,000,000
$30,600,000,000
$51,696,919,000
$23,124,823,000
Sep-02
$4,338,000,000
Dec-03 $24,519,059,000
Jun-02 $163,961,000,000
Dec-03 $40,500,000,000
Jun-03 $68,734,061,000
Jun-03 $46,933,432,000
Of the remaining 76 plans, there were eight

plans with actuarial assets equaling liabilities, i.e.,
a funding ratio of 100 percent. The remaining 68
plans all had unfunded liabilities of varying levels.
Four of the 68 plans had unfunded liabilities between
$1 and $9.9 million; seven plans had unfunded
liabilities between $10 million and $99.9 million;
22 plans had unfunded liabilities between $100
million and $999.9 million; 33 plans, the majority
in this unfunded liability grouping, had a liability
amount between a billion and $9.9 billion; and the
unfunded liability levels of two plans exceeded $10
billion. The latter two plans were the Teachers
Retirement System of Illinois (-$23.8 billion) and
the Ohio State Teachers Retirement System (-$17
billion), both plans as of June 2003. However, Illinois issued $10 billion in pension obligation bonds
in June 2003. The Teachers Retirement System of
Illinois share of this bond issue, $4,330,374,000,
was received after the close of the fiscal year and
not included in the actuarial asset figures presented
above.
Public Sector Retirement Plan News

from Across the Country
Given the gravity of the financial climate

confronting so many public sector retirement
systems across the country, state lawmakers and
members of the public are devoting increasing
degrees of resources and time to restore the fiscal
health of these systems. As documented in previous
chapters, alongside the depleted state and local
government retirement system coffers, the nation
faces serious questions about retirees drawing on
both Social Security payments and personal savings
to last them through their golden years. Consequently, state lawmakers have been pressured to act
and stem the flow of red ink sweeping across the
public sector retirement plans in recent years.
Value
Date
$89,300,000,000
Jul-03
$534,638,594
Jul-03
$51,877,037,007 Dec-02
$26,179,000,000 Dec-03
Sep-02
Dec-03
Jun-02
Dec-03
Jun-03
Jun-03
Unfunded
Liability/Surplus
$12,600,000,000
$5,964,046,644
$3,306,562,870
$1,286,000,000
$757,000,000
-$7,444,409,000
-$7,894,000,000
-$9,900,000,000
-$17,037,142,000
-$23,808,609,000
table 28
For instance, Iowa state Senator John Kibbie

stated that [T]he economy and our [lack of] return
on investments have only been part of the problem,
referring to the retirement plans in his state. We
have also got more people retiring and at higher
wages.4 Then, Kansas state Senator Jim Barone,
referring to conditions in his state, noted that
[W]e are confident that the pension for everybody
collecting one today is secure. The question is,
what will be there 30 years from now for the people
currently working? There is a lot of concern about
that.5 Consequently, practically every state in the
union grapples with devising retirement systems
that are financially viable in the long term so that
future generations can progress towards their retirement with confidence.
The following section presents a cross-section
of recent trends and information on the status of
public sector retirement systems from across the
country and, where possible, details on the actions
taken by these states and localities to enhance these
retirement systems. In the context of the battering
these retirement systems have endured with the
downturn in the economy recently, and the onset of
a huge surge in the number of retirees in the coming
decade, policymakers continue to track their individual retirement systems closely.
Alabama
In March 2004, the states finance director

announced that Alabamas unfunded liability for
retirees healthcare amounted to approximately
$10.9 billion, a significantly higher number than
the $7.5 billion cost estimated provided a scant four
weeks before.6 This staggering amount was likened
to paying every man, woman and child in Alabama
the sum of $2,400 each if the state were to fully
fund retiree healthcare. Even more disturbing is the
fact that this liability level will continue to grow by
almost $1 billion every year as the state takes on

about $283 million in new debt for state employees
and $712 million for employees in education every
year. In devising a solution, the finance director
noted that the state could increase retiree contributions toward healthcare and change the retirement
eligibility requirements. In response, during the
2004 legislative session, Alabama Governor Bob
Reilly proposed fundamental changes in the way
we are operating today and proposed legislation
that would require future state employees and
teachers to have 30 years of service instead of 25
years to draw full retirement benefits; however,
this measure did not emerge from committee in
the Legislature during 2004. The governor also
appointed a 13-member task force comprising a
cross-section of legislators, business executives
and academics to examine the soaring cost of health
insurance for public employees.7
Any discussion of Alabamas public pension
funds has to include reference to the record of
the Retirement System of Alabama (RSA) and its
executive director Dr. David Bronner.8 In news
coverage, Dr. Bronners unorthodox series of
investments and uncanny timing have won him
comparisons to the billionaire financier Warren E.
Buffet, along with the moniker a man who has
enjoyed a Midas touch for most of a three-decade
career, has led Alabamas pension fund from $500
million in assets in 1973, to $26.2 billion in assets
in the space of 30 years. These unorthodox investments include the following:
investing in Consolidated Edison bonds in
New York City in 1975, setting the stage for
becoming its largest investor;
purchasing $200 million in New York City
bonds in the late 1980s, a time when the city
was experiencing a fiscal crisis;
investing $100 million in the late 1980s (an
amount that later rose to $364 million) to
purchase 55 Water Street, a 54-story office
tower and a 15-story annex in the vicinity of
Wall Street in New York City*;
allocating $2.5 billion to purchase Raycom
Media of Montgomery, Alabama, a media
company with 36 television stations in 19 states
and Puerto Rico;
investing $1.8 billion in Community Newspaper Holdings daily, weekly and semi-weekly
newspapers in more than 200 communities;
setting aside $160 million to invest in Battle
House Tower, a landmark project in downtown
Mobile, Alabama, that includes restoration of

the historic Battle House Hotel;
financing a 35-story office tower that will
become the tallest building in the state; and
investing $142 million in the Robert Trent
Jones Golf Trail of Opelika, Alabama, the
renowned chain of golf courses that spans 23
courses and 378 holes at eight sites throughout
the state, and the Lodge, a 129-room, 15-suite
hotel and conference center.
The latest RSA acquisition involves the

teetering US Airways, the nations seventh largest
airline. In late 2002 and early 2003, RSA outbid the
private equity firm Texas Pacific Group, renowned
for its resuscitation of then ailing Continental
Airlines, with an offer of a $240 million investment
and $500 million in financing for a 36.2 percent
stake to keep the airline financially afloat and flying.
RSA then further sweetened the deal by agreeing
to slash payments for leases that the pension fund
already held on $340 million worth of US Airways
aircraft. However, in mid-September 2004, US
Airways nose-dived into bankruptcy reorganization
court for a second time in its history and the possibility of RSAs investment taking a major hit loomed
large.9 In response to the querying of his decision
to acquire a portion of US Airways, Dr. Bronner
indicated that RSAs financial condition remained
on solid ground since the state retirees exposure
amounted to less than 1 percent of their more than
$25 billion in total savings.
Arkansas
For the fiscal year that ended June 30, 2004,

the market value of the Arkansas Teacher Retirement Systems assets increased by almost 18 percent
to $8.2 billion, an increase in value of about $1.2
billion from the prior fiscal year.10 The stellar
performance of the Arkansas Teacher Retirement
System was better than 77 percent of the nations
public retirement systems for the most recently
concluded fiscal year; the average growth in the
value of these public retirement systems assets,
according to the plans investment consultant Ennis
Knupp & Associates, was 15.8 percent. In terms of
the specific components, the value of the systems
domestic stock holdings increased 25.7 percent to
$3.4 billion (which is better than 86 percent of the
nations public systems), the value of foreign stock
holdings increased 28 percent to $1.4 billion, and
the value of bond holdings increased 1 percent to
$1.6 billion.
This investment had appreciated to $830 million

by late 2002
California
Like a number of other large and small states

(New York, Illinois, Kentucky, Massachusetts),
California started fiscal year 2005 (July 1, 2004
through June 30, 2005) without a budget. Governor
Schwarzenegger and the Legislature could not agree
on a number of items, and one of the major obstacles
to clinching an agreement was related to the states
pension fund. In order to cover payments owed to
public pension funds, the governor had proposed
borrowing nearly $1 billion. Specifically, the
governors proposal sought to link $929 million
in borrowing to long-range pension fund changes,
a move he argued would save the state $2.6
billion over 20 years.11 However, given that the
Legislatures chief attorney immediately expressed
concerns about the legality of this borrowing plan,
a move that further widened the gulf between
the Legislature and the governor expeditiously
clinching a budget deal.
In this connection, given the multi-billion dollar
budget shortfall plaguing the state of California,
Governor Schwarzenegger also proposed pruning
retirement benefits for future state employees to
the benefit levels state workers were getting before
1999, when the Legislature and former Governor
Gray Davis approved higher pensions and early
retirement.12 In fact, the cost to taxpayers for state
worker pensions soared from $200 million in 2001,
to more than $2.5 billion in 2004; the post-1999
benefit increases alone amounted to an annual
expenditure of $600 million. While the most sizable
increases went to public safety workers, including
prison guards and the state highway patrol, all state
workers and retirees shared in the boost. As in the
case of the previously described (in Chapter 2)
generous DROPs provided to employees of the city
of Houston, the booming stock market resulted in
a series of actions by various governments around
the country that proved to be extremely costly when
both the stock market and the economy started sputtering. California fell into that category, with the
additional benefits legislated by state government
in 1999.
The California Public Employees Retirement
System (CalPERS), the nations largest public
pension plan, garnered a great deal of media attention in 2004 as a result of a number of positions it
took. For instance, in May 2004, CalPERS voted to
oust 38 hospitals from its Blue Shield HMO network
because they were deemed too expensive, a measure
expected to influence healthcare purchasing decisions across the country.13 Given that premium
increases topped 50 percent in the prior three
years, CalPERS, the nations third largest buyer
of employee health benefits for 1.2 million public

agency employees and retirees, will save about $50
million annually with this step.
Another action involving CalPERS in 2004
concerned Safeway, the grocery store chain.14 In
April 2004, CalPERS announced that it would
withhold its vote for the chairman and two directors of Safeway seeking re-election at the companys
annual meeting. In explaining its rationale for this
announcement, CalPERS indicated that it was
a reflection of the failure of the grocery chains
board to make shareholder-friendly moves such as
expensing stock options and Safeways $20 billion
loss in shareholder value since 2001. At that time,
the giant pension fund held 2.7 million Safeway
shares.
In mid-August 2004, CalPERS announced that
it had posted its largest annual return in six years as
a result of gains in its stocks, bonds and real estate
holdings.15 For the year ending June 30, 2004,
CalPERS earned almost 17 percent (16.7 percent)
on investments, the giant pension funds largest
increase since a 20 percent gain in 1998. The fund,
which oversees pension benefits for more than 1.4
million state and local government employees,
increased its assets by $22.7 billion and lifted its
holdings to a gargantuan $166 billion. While its
United States stock investments improved by 20.8
percent in the year, real estate investments grew by
almost 12 percent and international bond investments expanded by 8 percent.
Pension-related information in the city of San
Diego also has been in the news recently. Specifically, the city of San Diegos $1.1 billion unfunded
pension system liability has resulted in both bond
rating downgrades and an investigation of possible
violation of federal law.16 Specifically, the Federal
Bureau of Investigation and the Securities and
Exchange Commission opened a preliminary investigation to determine whether San Diego intentionally underfunded its City Employees Retirement
System since 1996 and then deployed the extra
cash to balance the citys budget. According to
financial disclosure reports that were made public
in January 2004, the citys mayor and city council
voted to continue underfunding the citys pension
fund through 2009, even though they were made
aware of the citys unfunded liability and errors in
the 2002 financial statements by a pension trustee in
November 2002. In light of these revelations and the
federal investigations, San Diego will be stretched
to bridge the funding gaps with the mayor acknowledging that the city may have to cut services, raise
taxes and even sell city assets to meet its neglected
pension obligations. The credit downgrades will

pose additional challenges and Moodys Investors
Service, the credit rating agency, warned that just to
maintain its current funded ratio of 66 percent, the
city will have to increase its general fund contributions from $55 million in 2004 to $90 million in
2005.
San Diegos unfunded pension liabilities are
further compounded by the fact that two years
ago, the city offered individual pension accounts
to certain employees and, now, some of these
employees stand to earn more by retiring than by
working.17 This situation is similar to the scenario
played out in Houston and several other cities. When
San Diego offered this incentive to its employees,
the city indicated that it would perform a cost study
to assess its feasibility; this study was never done.
Further information on San Diegos financial
bind, released in September 2004, highlighted the
shortfall in its pension fund for municipal workers
and raised the real prospect of the city filing for
bankruptcy in the near future.18 This report provided
additional details on how the city, year after year,
used its pension fund earnings that exceeded projections to pay for a variety of local projects, and paying
health insurance premiums for retired teachers and
firefighters. Since actuarial projections are longterm averages, when the above-average earnings
are deployed toward other expenditure categories,
the citys pension plan is left with inadequate funds
to offset the below-average earnings experienced in
the past few years. The reports authors were quick
to point out that this practice is sanctioned by law in
California (and a number of other places) and it was
not something done in stealth. Their findings also
raised the specter of other communities that allow
this practice facing similar financial complications.
Connecticut
In August 2002, in response to the $1.8 billion

loss in the prior year in the fund that holds retirement
monies for state and local government employees,
Connecticuts treasurer proposed a series of measures
to stave off the flow of red ink.19 For fiscal year
2002, the fund declined from $20.5 billion to $18.7
billion, prompting Treasurer Denise L. Nappier to
propose maintaining the pension system as a defined
benefit plan, rather than converting to one that would
depend on market returns. As principal fiduciary
for Connecticut Retirement Plans and Trust Funds
(CRPTF), which consists of six state pension and
eight state trust funds, the treasurer is responsible
for prudently managing the retirement funds for
approximately 160,000 teachers, state, and municipal employees who are pension plan participants
and beneficiaries, as well as academic programs,

grants, and initiatives throughout the state.20 In this
capacity, Treasurer Nappier also proposed that the
state fully fund the Teacher Retirement System, from
the 85 percent picked up by state at that time, placing
any unappropriated surplus money into the retirement fund, and requiring state money managers to
adhere to stricter standards. According to the fiscal
year 2003 report, the net assets of the funds declined
by approximately $400 million to $18.3 billion as a
result of net cash outflows.21
Connecticut, like the large pension funds in
several other states, in May 2004, citing pervasive
conflicts of interest and dismal company performance, decided to withhold their votes for the head
of Safeway and two other directors.22 Similarly,
Connecticut also decided to withhold voting for the
election of Michael Eisner to the Board of the Walt
Disney Corporation.23
Florida
In 2002, the Florida Legislature and the State

Board of Administration set up a defined contribution plan in which the state makes the same established pension payment and the employee has the
option of directing its investment.24 The Florida
Retirement System had been a defined benefit plan
for years where the employee secured a pension
credit (usually 1.6 percent in career service),
multiplied by the employees years of service and
multiplied the employees average peak earning
years. The move to the defined contribution investment plan was an effort to provide employees with
investment choices. However, the State Board of
Administration indicated that of the 21,270 state
employees who signed up for presentations on the
two retirement plans, only 540 opted for the defined
contribution format.
Georgia
The flameout of the Enron Corporation in late

2001 destroyed the portfolios of certain investors
and negatively affected every category of investor
that had invested in the company. Included in the
latter list were the two major Georgia public pension
funds. Yet, in early 2002, information trickled out
that a portion of the whopping $122 million that
Georgias retirees lost might have been prevented
by emergency triggers designed to sell plummeting
stocks.25 According to information, the states
Teachers Retirement Fund, which had a value of
$39.7 billion at that time, lost $79 million during the
Enron meltdown while the smaller, state employees
fund, which was worth $14 billion at that time, lost
$43 million. The combined $122 million loss made
Georgias retirement system one of the biggest
losers to Enron in the country; only much larger

pension systems in Florida and California were
affected more deeply. In an effort to enhance their
assets, pension fund managers have been increasingly investing in equity markets. In 1999, the
General Assembly and then-Governor Barnes gave
pension fund managers the option to increase the
portion of retirement system monies to 60 percent,
from the previous limit of 50 percent.
In contrast to the state pension plans, the city
of Atlantas three pension funds each have about
40 percent of assets in the market and do have the
aforementioned stop loss strategies. Even though
it is estimated that the combined police, fire and city
employees funds with the Atlanta pension system
lost about $3 million on Enron investments, the citys
emergency trigger mechanism prevented further
asset erosions as a result of the Enron collapse. It
should also be mentioned that the presence of these
trigger mechanisms poses the following issue: in the
event of a general stock market slide, the stop loss
triggers could spur a large-scale sell-off of a funds
assets.
Illinois
Like a number of other states, Illinois discovered during the downturn of the economy in the
last few years that its pension plans liabilities were
significantly underfunded.26 In fact, Illinois retirement system was the most underfunded of any state
in the country. Given the twin facts of extremely low
interest rates and tenuous fiscal position of the state
budget, Governor Rod Blagojevich proposed, and
the Legislature approved, selling up to $10 billion
in bonds, with part of the proceeds paying off the
states 2003 and 2004 obligations to the fund and the
rest being invested by the fund.
Further boosting the states efforts was the
impressive demand for the bonds; the state had
orders for more than twice the amount it sold.
Since the state planned to invest part of the funds
raised, the bonds had to be issued on a taxable basis.
Notwithstanding this, Illinois secured a 5.05 percent
rate, the lowest ever for a 30-year taxable government bond.
Kansas
In early February 2004, Kansas lawmakers,

including Governor Kathleen Sebelius, Senate
President Dave Kerr and other legislative leaders,
voted 8-1 in a state finance council meeting to
borrow $500 million and buttress the states beleaguered public employees pension system, KPERS
(Kansas Public Employees Retirement System).27
KPERS is a retirement fund for 240,000 state
workers, teachers, city and county workers and

classified employees at Kansas University and the
other state universities. While there was disagreement over how to pay off the bonds, the importance
of ensuring the long-term financial viability of the
pension fund was the objective of lawmakers from
both political parties. While Governor Sebelius,
a Democrat, maintained that the state should pay
off the KPERS bonds with revenue from expanded
gambling, Senate President Kerr, a Republican and
a strong supporter of the $500 million bond issue,
stressed that expansion of gambling was an independent issue.
According to the agreed upon proposal, the
state was authorized to borrow $500 million within
the month and then deposit the money with KPERS.
The pension system was then to deploy the additional funding to try to narrow the nearly $3 billion
gap between future pension obligations and current
assets, a shortfall officials contend was created by
the collapsing stock market and insufficient contributions from the state. KPERS intends to invest the
funds raised in the recently revived stock market
and secure a greater rate of return than the amount
of interest the state has to pay to retire the bonds.
While some legislators note that the expected extra
revenue could evaporate with another dip in the
stock market, others maintain that KPERS investments historically have a higher rate of return than
the bond issues interest rates. (KPERS investments
have earned an average return of 8 percent per year,
while the bonds typically carry an interest rate of
less than 6 percent.) Like supporters of bond issues
in other states, those in Kansas also maintained
that the very low interest rate environment made
borrowing a more attractive strategy. The state will
start retiring the debt in 2005, paying $10 million the
first year, $15 million the second year, $27 million
the third year, and $37 million the fourth year and
for each year after that through 2034.
Louisiana
There has been a great deal of activity regarding

public pension plans in Louisiana in the past few
years. Like so many other retirement systems,
Louisianas state retirement systems are underfunded and reputed to carry between $8 billion and
$11.5 billion in unfunded accrued liability, i.e., the
amount estimated to cover retirement benefits for
active and retired employees over the long haul.28
Complicating the retirement issue in Louisiana is a
constitutional amendment that requires the Legislature to make payments to cover the unfunded accrued
liability by the year 2029. To enforce the constitutional amendment, the Legislature has required the
states retirement boards to charge a percentage
from the payrolls of employees and set aside these

funds to avoid future unfunded liabilities.
The situation with the different retirement
systems was so dire that in late February 2004 the
states retirement boards for teachers and other
school employees began notifying school boards,
universities and community and technical colleges
that they would have to pay a significantly higher
percentage of their payroll into the retirement
programs on July 1, 2004, in order to bolster the
unstable systems. Just for the 67 parish and city
school districts in the state, the increase added up
to $180 million every year; this was in addition to
the annual $60 million increase in health insurance
premiums faced by the states school systems. For
instance, the Caddo Parish school system expected
an increase of $7.5 million more for retirement than
it paid in fiscal year 2004; similarly, Bossier Parish
calculated the increased cost to amount to $3 million
in the next fiscal year. In mid-October 2004, the
Bogalusa City School System announced that due
to an $800,000 shortfall in its budget, the city had
failed to make payments in the prior two months
toward group benefits and retirement for teachers
and system employees. Similarly, the Franklin and
Point Coupee Parish School Boards also reported
the nonpayment of group benefits.29
Consequently, during its 2004 session, the
Legislature dealt with a number of issues related
to the dire circumstances of the states retirement
funds. A major portion of these discussions pivoted
around a suitable package to refinance a segment of
the huge retirement debt accumulated by the states
retirement systems.30 During the months of May
and June 2004, discussions in both the Senate and
House Retirement Committees revolved around
lengthening the payment of retirement debt for the
teachers and state employees retirement systems.
After months of negotiations, particularly because
some lawmakers were concerned that the refinancing plan would expose future generations to
extra debt, both chambers endorsed a compromise
to spread out the payment of $1.7 billion in certain
state retirement payment debt from 25 years to 30
years. Without these changes, school boards and the
state would have been forced to pay more in retirement costs in the current fiscal year (2005) and cut
other spending priorities. The new 30-year payment
schedule--Governor Blanco had pushed for a 40year payoff--required that that state generate an
extra $22 million in increased retirement funding
in the current fiscal year. Without this refinancing
measure, school boards would have had to come up
with an additional $52 million more in retirement
contributions and the state would have had to allo-
cate an additional $25 million for the state employee

system. As a cautionary measure, the House Retirement Committee added in new safeguards requiring
that in years of booming investment returns, a
portion of these earnings are channeled toward
paying down the accumulated debt.
After the conclusion of the 2004 regular
session, Governor Blanco signed legislation to
refinance the $1.7 billion in retirement system debt,
though the governor did veto legislation that would
have granted a lucrative pension boost to about 500
legislative employees, a move that could cost the
state $60 million over the long term, according to
one estimate.31
Another retirement system-related issue that
generated attention in 2004 involved the Louisiana
Municipal Police Employees Retirement System
(MPERS) decision to invest in a golf course near
Fredericksburg, Texas.32 The $1 billion retirement
fund for 9,500 full-time police officers in more
than 150 departments has been under scrutiny for
borrowing $30 million to invest in the Texas golf
course just as cities across the state brace for another
increase in payments to the system. MPERS, which
suffered a $200 million loss during the collapse of
the stock market, also has been in the news regarding
spending $3 million building a new headquarters
that sits half-empty and nearly $90,000 to attend
conferences in locales like Las Vegas, Lake Tahoe,
West Palm Beach, Florida and New Orleans. Consequently, the state attorney generals office indicated
in late March 2004 that it had begun an investigation of the legality of MPERS investments and
expenditures.
Louisianas teachers pension plan, the
Teachers Retirement System (TRSL), attracted
attention in late March 2004 when an official alleged
improprieties in the funds investment strategies.33
According to this official, who received a negative performance review and was then fired from
his position after raising the investment strategies
issue with TRSL officials, private equity firms
welcomed pension trustees to annual meetings at
golf resorts where the atmosphere discouraged
tough questions. According to this official, who
began working at the TRSL in 2002, the proportion
of the plans investments in private equities was
surprising and alleged that plan employees and
trustees receiving meals, trips and other gratuities
from firms soliciting state business clouded their
evaluation of the performance of these firms in
managing the TRSLs assets. In March 2004, state
officials learned unexpectedly that they would have
to come up with an extra $147 million for the fund,
a development that spurred greater scrutiny of the

TRSLs activities. The plans trustees indicate that
their funding rules require that the TRSL grow very
quickly forcing them to invest in higher-risk assets
in the quest for greater returns.
In late 2003, Louisianas Legislative Fiscal
Office submitted a report to the Legislature entitled
Louisianas Retirement Systems: An Expenditure
Analysis (FY96-FY03).34 As noted in this report,
The state retirement boards of TRSL and
LASERS have failed miserably in this
fiduciary responsibility. They have wasted
hundreds of millions of dollars on unjustified administrative costs and by entering
into extremely expensive contracts with
out-of-state investment firms that provide
little benefit to Louisiana. The benefit that
the state does receive can be performed by
Louisiana citizens at a fraction of the cost.
This administrative waste and (especially)
the unnecessary, expensive out-of-state
contracts have cost the states retiree retirement portfolio between $450 million and
$500 million over the past seven years.35
While pension officials at these two retirement
funds criticized in the Legislative Fiscal Office
report urged patience,36 a veteran state lawmaker
immediately called for the Legislative Fiscal Office
to initiate an in-depth financial audit of the states
public retirement systems and their officials.37
In relation to Louisiana awarding active
management contracts to firms in other states, back
in April 2002, then Louisiana Senate President John
J. Hainkel Jr. pushed for an amendment to House
Bill 130 that would require the four state-run retirement systems to handle at least 10 percent of their
investments through in-state broker dealers.38 Over
a year and a half before the release of the December
2003 report by the Legislative Fiscal Office, in April
2002, Senate President Hainkel noted that [S]tate
brokers are losing out on millions of dollars in transactions as they are being bypassed by retirement
systems worth billions whose money managers
would rather deal in New York and other places.
He also continued that other states had minimum
in-state requirements; for instance, the New York
State Retirement Fund is mandated by law to handle
30 percent of investments through in-state broker
dealers and in Illinois, the state Investment Board,
the state university retirement fund and Chicago
Teachers Pension and Retirement Fund all have 30
percent minimum in-state requirements.
In a rare burst of positive news for the states

beleaguered retirement systems, Teachers Retirement System of Louisiana and the Louisiana State
Employee Retirement System could be among the
largest beneficiaries of a $300 million class-action
settlement with major pharmaceutical manufacturers
(Bristol-Myers Squibb Company among others) that
stemmed, in part, from a cancer drug scandal that
also engulfed Martha Stewart.39 Both Louisiana
retirement systems (among the larger shareholders,
along with retirement systems in Detroit, Michigan,
and Fresno, California) were named lead plaintiffs
in the case filed before the U.S. District Court in the
Southern District of New York.
Maine
In a contrarian approach, and hailed as the first

pension fund in the United States to do so, Maine
has adopted a strategy known as matching, i.e.,
deliberately aiming for low but guaranteed investment income to pay for the retirement benefits of its
workers.40 After being shellacked in the financial
markets in the 2000 to 2002 period, like so many
other states, Maines approach stands in contrast to
other state plans that seek riskier investment instruments (such as hedge funds and venture capital
projects) to generate higher returns and cover the
significant losses of the initial years of this decade.
In this vein, Maine recently put a portion of its
funds into very conservative bonds. The bonds pay
a low interest rate, but their values will rise or fall in
conjunction with the value of the pensions the state
must pay its retirees, regardless of the trajectory of
the markets. In sum, the bonds duration mirror the
scheduled payouts to retirees in coming years. This
strategy, known as matching, often was scoffed at
it in prior years even though analysts contend that
adopted early enough, it could thwart the collapse
and disintegration of both corporate and public
retirement funds.
While Maine made the conversion last year, the
state has only matched about one-third of its assets.
Hence, the remaining two-thirds is still invested in
stocks, a decision that does not completely safeguard the states investments from the gyrations
of the financial markets. For instance, before the
conversion, the investment returns from its pension
assets fluctuated from a gain of 25.7 percent in 2003
to a loss of 10.4 percent in 2002. So, the presence
of some two-thirds of its asset base still in stocks
is predicated on the assumption that over the long
term, stocks will grow faster than the conservative
bonds and bridge the unfunded portion of Maines
retirement system. Yet, by matching even one-third
of its investments, Maine has made a strategic depar-
ture from the rest of the industry as it seeks to ensure

the payments to its retirees.
As noted, Maines decision . . . represents a
watershed. It meant Maine would no longer think
about its investments the way most of the industry
doesstriving for high returns and avoiding a low
peer-group ranking. Instead, Maine would strive
for returns commensurate to its obligations, and it
would avoid drawing more tax dollars.41
Maryland
In the fall of 2001, news concerning Marylands

state employee pension system, a system serving
more than 80,000 retirees and 222,000 active
participants (teachers, police officers, judges, prison
guards and lawmakers from more than 100 state and
local agencies), grabbed the attention of numerous
interested parties.42 First, a leading tracker of public
retirement funds, the Trust Universe Comparison
Service (the widely watched evaluation of pension
fund performance compiled by Wilshire Associates) ranked Marylands state employee pension
last among its peers. Then, the Maryland General
Assemblys Office of Policy Analysis issued a report
indicating that the State Retirement and Pension
System lost 11.2 percent of its total asset value in
the fiscal year that had just ended (fiscal year 2002,
July 1, 2000 through June 30, 2001). Valued at $33.1
billion at the end of June 2000, the system was worth
$29.4 billion a year later; the pension fund then
dropped an additional $3 billion three months later
by September 30, 2001, a staggering loss of one-fifth
of its value in a scant 15 months.
Legislators and other policymakers informed
about their state pension funds abysmal performance expressed great concern and began a series
of investigations and explorations into determining
the reasons for this poor performance. In response to
these queries and concerns, then-Treasurer Richard
N. Dixon, who headed the pension board, and Carol
Boykin, the funds chief investment officer at that
time, indicated in official testimony that fund
officials do not plan to change their strategy significantly even after $3.5 billion in stock market losses
last year.43 This was because concerned Maryland
lawmakers, the state comptroller, dissident board
members, analysts and certain fund members had
questioned the funds efforts to consistently increase
the percentage of stocks in the funds portfolio even
after the fund had experienced unprecedented losses

in 2001. Certain board members also indicated that
the fund needs a more open process to select the
money managers that handle the funds investments.44
After some pressure, the pension board finally
agreed to a full-time outside consultant to help
guide its operations and investment decisionsa
measure strongly supported by legislative leaders
and consider changes to its written investment
strategy. In mid-January 2002, Treasurer Dixon
resigned from his position as head of the pension
board citing ill health; Maryland lawmakers moved
quickly to appoint one of their own, Delegate Nancy
K. Kopp, as state treasurer, to head the state retirement system.
The swirling controversy surrounding the
states pension fund became more complex in
August 2002 when federal authorities indicated
they had revived an investigation into the pension
funds relationship with Nathan A. Chapman, Jr., a
probe that traces back to April 2000 when federal
agents interviewed then-state Treasurer Dixon
about Chapmans activities.45 Chapman was fired
in January 2002 as manager of about $175 million in
state pension funds after the pension board learned
that the federal government (the Securities and
Exchange Commission) was investigating some of
his transactions.
In December 2002, the systems executive
director, Peter Vaughn, unexpectedly retired and
in April 2003, The Baltimore Sun reported that
Carol Boykin, the chief investment officer of the
troubled retirement system and an ally of former
Treasurer Dixon, had been ousted.46 Chapman was
then indicted in June 2003 by federal authorities
on 39 counts of defrauding the pension system of
millions by putting pressure on Alan B. Bond, a fund
manager he hired and supervised to make significant
purchases in the stock of Chapmans companies.
Bond had been convicted of fraud in 2002 and is
serving almost 13 years in federal prison.47
On the positive side, for fiscal year 2003 (July
1, 2002 through June 30, 2003), thanks to a powerful
fourth quarter, the states strained pension system
turned in a 3.47 percent gain, its first year in the
positive category since fiscal year 2000, according
It should be noted and as mentioned in the Introduction to this report, in May 2000, The Council of State Governments
Southern Office, the Southern Legislative Conference (SLC), issued a Regional Resource entitled Recent Developments
in State Retirement Systems in the SLC States. This report analyzed information released in March 2000 by the U.S.
Department of Commerce on public sector retirement systems for 1998. One of the points made in this SLC Regional
Resource was that while the Southern state cash and investment growth average between 1997 and 1998 was 19 percent (the
national average was 16 percent), Marylands growth rate was an anemic 3 percent, the lowest among the 16 SLC states.
to news accounts.48 In the prior two fiscal years, the

plan lost 9.41 percent in 2001 and regressed by 7.63
percent in 2002. In the most recently completed
fiscal year, 2004, the plan secured improved results
in all categories of its investment program with a
growth rate of 16.2 percent. Assets increased by
$3.5 billion to $30.1 billion from the fiscal year 2003
level of $26.6 billion.49
The pension systems improved financial
picture is a reflection of both the active involvement of the General Assembly in passing reform
legislation and the hiring of senior management
intent on developing a culture of accountability
at the system.50 The reform legislation included the
addition of board members with financial expertise;
an independent consultant to guide investment decisions; a detailed investment policy to prevent the
abuses perpetrated by Chapman; a ban on the type of
sub-manager arrangements that permitted Chapman
to pressure a third party he supervised to buy stock in
his companies; and the implementation of a series of
governance procedures with a focus on checks and
balances. Trustees from the prior era also have been
removed, sometimes statutorily, particularly those
who failed to be actively involved in the operation
of the retirement system.
Mississippi
At the end of fiscal year 2003 (July 1, 2002

through June 30, 2003), like so many other plans, the
Public Employees Retirement System of Mississippi secured a positive rate of return for the first
time in three years.51 The 2003 fiscal year growth
rate of 3.5 percent was the result of an increase of
$452 million in total investments to $14.6 billion.
For the cumulative five-and-10-year periods, the
system had annualized returns of 1.6 percent and
7.8 percent, respectively. For this fiscal year, the
plan covered 326,931 participants.
Shortly after the release of the fiscal year 2003
information, the systems executive director noted
that contributions to the system had not increased in
a number of years, since the early 1990s.52 At that
time, state employees contributed 7.25 percent of
their salaries to the fund and the state contributed
9.75 percent.
During the 2004 regular legislative session,
the Senate debated the merits of allowing teachers
who have worked for 30 years or more and had
been retired for a year to return to teaching without
giving up their benefits.53 Under Senate Bill 2600,
these teachers would not continue paying into the
retirement system but their employers would make
contributions on their behalf. This is because there
were a number of schools in the state that were in

desperate need of seasoned teachers. Yet, the bill
was unsuccessful because opponents raised sufficient doubts about the added strains this proposal
would place on an already stretched retirement
system. As the systems executive director noted,
the states retirement system is not in a condition to
handle an influx of teachers able to draw a full-time
salary and a pension. . . .the retirement system is not
the best avenue for dealing with the teacher shortage
problem.54 For instance, the system is paying out
more money to its 62,000 retirees than is coming in;
consequently, retirement officials have considered
increasing employer contributions by 1 percent,
which would generate $48 million annually.
Later in 2004, the city of Gulfport notified
about 45 retired employees, mostly police officers
and firefighters, that they must pay the full cost of
their health insurance beginning November 1, 2004,
if they want to continue it.55 According to officials,
the city was in violation of the state constitution as
interpreted by the attorney general who held that
retired employees, while able to continue in the
insurance plan provided by their prior employer,
should bear the full costs of any such coverage.
The employer is not to bear any costs related to
providing benefits for a retired employee. Based
on this ruling, officials concluded that the city could
not subsidize public retiree health insurance costs
since it is a form of compensation; the city could not
pay compensation unless it is earned. Consequently,
health insurance costs for these retirees will jump
steeply, from about $200 a month to nearly $900 a
month for a retiree and spouse.
New York
As states and localities strive to balance their

budgets in these fiscally challenging times, chief
executives of these entities often seek to slash the
required contributions to pension funds to garner
additional funds. New York is one of these states, and
in mid-January 2003, Governor George Pataki floated
a proposal to postpone $1.3 billion in local and state
payments due to the public retirement program.56
The governors efforts to enact a similar proposal in
the prior legislative year had been unsuccessful and
had included capping annual employer contribution
increases to the pension system at 6.5 percent.
In opposing the governors proposals in 2004,
state Comptroller Alan G. Hevesi indicated that four
of the proposals were unconstitutional; according
to Comptroller Hevesi, reducing the contributions
the state and local governments must make to their
pension funds was unconstitutional because it would
weaken the pension funds in the long term.57 As
Comptroller Hevesi noted, the states constitution

bans the use of pension funds to bridge shortfalls in
state and local budgets. While this decision resulted
in the need for the governor to fill a new $500 million
hole in the state budget on the eve of presenting
his executive budget for the new fiscal year, county
executives and mayors outside New York City also
faced the likelihood of not receiving $800 million
in relief from skyrocketing pension costs that they
had hoped for. Comptroller Hevesis actions will not
affect the rising costs of pensions in New York City,
which has its own pension funds. Even in New York
City, Mayor Bloomberg had been seeking a new,
lower pension tier for new city employees.
North Carolina
In early January 2002, media accounts tallied

the fact that while North Carolinas pension fund
lost nearly $7 billion in the prior year, the fund still
outperformed a majority of the funds across the
country in ranking among the top 25 percent of the
nations public pension funds.58 As of September 30,
2001, the fund stood at $52 billion, dropping from
$57 billion a year before, an 11.8 percent decline.
At that time, the fund had diversified its investments
with some $26.9 billion in stocks, $23.9 billion in
bonds and $1.4 billion in real estate. In comparison
to other plans, North Carolina suffered minimally
from the Enron debacle (about $15 million),
certainly a smaller amount than the $300 million
loss experienced by Floridas pension fund.
In the fall of 2002, the states Retirement
System Division sought permission from the
General Assembly and the governor to expand its
125-person workforce in 2003.59 Citing a steep
increase in the monthly applications for retirement,
walk-in visits, telephone callers and written correspondence, retirement system officials indicated
that it was imperative to expand its workforce
to improve customer satisfaction. The divisions
annual operating budget ($9.4 million, at that time)
was paid entirely from retirement system earnings,
and it was proposed that the workforce expansion
also be funded in that manner. At that time, the
system had 645,000 retirees or active employees
participating in the system.
At the end of June 30, 2002, plummeting
stock prices, corporate accounting scandals and the
states budget crisis resulted in a $3.3 billion decline
in North Carolinas public employee pension fund
from the prior year.60 According to news accounts of
this development, state workers were less worried
about the market-related losses than they were
about the state governments decision to suspend
its regular contributions to the pension fund.61 In a
trend replicated in other state and local government

settings, in September 2002, the General Assembly
decided to withhold $144 million in payments to
the plan in order to help offset the states budget
shortfall. According to an actuarial projection
made by the state treasurers office, given that the
government is not contributing to the pension fund
while state workers continue contributing 6 percent
of their annual pay, the pension fund would face
a $1 billion shortfall by 2010. In this connection,
Treasurer Richard Moore, whose office oversees the
fund, noted that [W]e must get back on the road to
making regular contributions to the fund.62 In fact,
in subsequent months, Treasurer Moore proposed
changing the North Carolina constitution to prevent
governors from seizing contributions to the fund to
balance the state budget.63
For the year that ended June 30, 2004, the
states pension fund investments recorded a 12
percent annual return, a positive return for the
second year in a row (the fund posted a 7.6 percent
growth rate in 2003).64 The states pension fund,
which serves almost 700,000 North Carolinians,
had assets totaling nearly $61 billion, up from $55.7
billion in the previous year. In further positive news
for the fund, the General Assembly, which pledged
$154 million for the fund this year, also has started
paying back $130 million of the funds retained
earlier on in the decade in an effort to balance the
states budget.
In relation to an issue that attracted attention
in Louisiana, in April 2003, the North Carolina
board that oversees the states retirement plan
selected Prudential Financial, a giant insurance
and financial services company based in Newark,
New Jersey, to replace BB&T, the Winston-Salem,
North Carolina-based financial services entity,
as the administrator of $2.3 billion in retirement
assets. Prudential emerged as the winner in a hotly
contested bid among seven companies and promised
the highest level of service and the lowest fees.65
In this connection, Prudential has agreed to waive
all account fees, resulting in $22.3 million in savings
over the next five years for the 175,000 participants
in this particular portion of the state pension fund.
Losing this contract was a major blow to BB&T
given that the bank originally secured the contract
in 1985 and then won additional competitive bids to
secure two extensions.
Oregon
In a trend that has been replicated in many

states, Oregons pension bond offering in fall
2003 was the largest bond in its history and its
first global offering ever.66 As in the other states,
Oregons bond offering was driven by the need to
buttress its pension plan. In this offering, the state
borrowed more than $2 billion at 5.78 percent and
hopes to earn at least 8 percent, the assumed actuarial rate on its liability. According to the Oregon
treasurers office, given the very attractive interest
rate environment, the state will save $1 billion by
the lower financing costs. Implementing this bond
offering generated additional challenges given that
the state constitution requires the approval of the
states citizens when the state seeks to borrow more
than $50,000. Hence, a constitutional amendment
had to be approved by its citizens and, even though
the amendment was successful, a lawsuit was filed
challenging the states authority to take on the debt.
While the suit was dismissed in circuit court, as of
spring 2004, the states portfolio of bond-funded
investments was performing well.
Pennsylvania
The Pennsylvania State Employees Retirement System is one of the states major public
pension plans. Like other plans across the country,
after experiencing serious setbacks in the initial
years of this decade, in 2003, the plan bounced
back to register impressive gains. For the fiscal
year that ended on December 31, 2003, the plan
recorded the sizable improvement of 24.3 percent
in its assets. In terms of actual numbers, in fiscal
year 2003, the plans net assets stood at an impressive $24.5 billion, an increase of $3.7 billion. In the
prior fiscal year, 2002, the plans net assets declined
by $3.8 billion and had slumped to $20.9 billion.
The more than 24 percent asset growth in fiscal year
2003 compared very favorably to the plans performance for the fiscal years that ended on December
31, 2002 and December 31, 2001; the plan suffered
losses amounting to -10.9 percent in 2002 and -7.9
percent in 2001, respectively.67
Like a number of localities experiencing
severe financial problems with DROPs, described
in Chapter 1, the city of Philadelphia also faces
difficulties.68 Philadelphia introduced these supplementary pension accounts in 1999 with the proviso
that the city would review the program in four years
to determine whether it was affordable. Last year,
the mayor announced that these added benefits were
draining the citys pension fund and that it had to be
abolished; however, the city pension trustees had
made the program permanent.
South Carolina
South Carolinas pension fund ranked among

the few plans to eke out a positive gain on its investments for the fiscal year that ended June 30, 2002.69
In fact, according to the trade publication Pensions
& Investments, South Carolinas pension system
was the only one of 72 public pension funds to attain
a positive return on its investments for that fiscal
year, a year when the stock market plunged steeply,
foisting negative returns on a majority of the plans.
When the South Carolina system first invested in the
stock market in June 1999, it was the last state to do
so and for fiscal year 2002, the fund was authorized
by law to invest up to 40 percent of its assets in the
market. While the fund invested about one-third of
its total assets in the market during this year, the fund
lost about $1.1 billion due to the hemorrhaging stock
market. Yet, the states other investments, mainly in
fixed-income instruments, enabled the fund to post
the modest $195 million, or 1 percent, gain for its
total portfolio for this fiscal year.
In terms of the funds net assets for the fiscal
year that ended June 30, 2003, South Carolina stood
at $22.4 billion, up from the $20.9 billion reached
exactly one year before. This represented a gain of
6.8 percent between fiscal years 2002 and 2003.70
The following graph reflects the plans net asset
values for the past five years and demonstrates
the relative success of the fund even during the
extremely bleak years of 2000 through 2002. For
instance, between fiscal years 2001 and 2002 when
other public pension plans experienced huge losses,
South Carolina only suffered the miniscule loss of
less than a full percentage point (-.53 percent).
As indicated in Figure 12, despite the severe
losses experienced in the market during the 20002002 period, the South Carolina pension fund
managed to largely stay in positive territory given
the fact that the state maintained a lower proportion
of its overall assets in the market. In fact, in the
three fiscal years mentioned, the state lost a cumulative $2 billion with its investments in the market.
This prompted the state treasurer to unsuccessfully
try and alter the way the state invests its retirement
funds in the stock market in early March 2003.71
treasurer Patterson proposed that given the market
losses suffered by the fund, investing in passive
funds that do not carry management fees, an added
expense borne by the fund, should be considered.
Yet, the Treasurers proposal did not convince the
South Carolina Budget and Control Board, the state
entity that oversees the fund, which voted 4-1 to
invest an additional $500 million of retirees money
in the market at this March 2003 meeting. In fact,
Governor Sanford said while the fund has lost
South Carolina Retirement System, Plan Net Assets, Fiscal Years 1999 to 2003
figure 12
Source: South Carolina Retirement System
money in the stock market, it could have made many

more billions of dollars if it had begun investing in
the 1980s.72
As in a number of other states and localities,
during its 2004 session, there was debate in the
General Assembly about the Teacher and Employee
Retirement Incentive (TERI) program.73 Devised in
2000 by the General Assembly, the TERI allowed
employees to continue working for five years after
retiring. The retirement payments they would have
secured during these five years would have been
assigned to a special account they could access upon
leaving the program. The rationale in creating this
program was to allow teachers and key employees to
keep working after their retirement, at the request of
their supervisors. Critics of the program contended
that the TERI kept nonproductive workers around
too long; kept employees in management positions, making it difficult to groom new leaders,
and costs too much.74 However, according to an
independent study that was released in March 2004,
the incentive program only added $100 million to
the retirement systems liabilities instead of the
previously estimated $650 million. In the House of
Representatives, House Bill 4888 sought to remove
the earning limitation for a retiree and then eventually phase out the entire TERI program. There was
a great deal of opposition to this proposal, and the
bill author requested that the bill be removed from
the legislative agenda for the year.
Tennessee
In its most recent annual financial report, issued

on December 15, 2003, for the fiscal year that ended
June 30, 2003, the Tennessee Consolidated Retirement System (TCRS) posted a growth rate of 4.9
percent.75 For the prior two years, TCRS growth
rate had been -1.92 percent and -1.57 percent respectively. As of June 30, 2003, TCRS had 198,917
active members while a total of 81,121 retirees and
beneficiaries were receiving monthly retirement
annuities.
In February 2003, Tennessee lawmakers heard
from the then-state treasurer that the state will have
to pay an extra $180 million to its employee pension
fund for fiscal year 2004/05.76 According to former
Treasurer Steve Adams, since the $23 billion fund
did not meet an assumed 7.5 percent return on its
investments for the fiscal year that ended on June 30,
2002 (the fund actually shrank by 1.92 percent), the
state would have to allocate the additional funds to
account for the difference. For fiscal year 2003/04,
the states contribution to TCRS was expected to
be $170 million and more than double that amount
(about $350 million) for the following year.
In early October 2004, the Memphis City
Council announced that it had terminated its early
retirement program for high-ranking officials,
introduced in January 2001, which allowed both
elected and certain appointed officials to collect
pensions after just 12 years of service, regardless
of their age.77 However, this termination decision
is not retroactive, ensuring that the approximately
300 eligible employees currently on the city payroll

will qualify for this attractive benefit once they
complete 12 years of service. According to the
council member that sponsored the amendment
to terminate this provision, the chief reason for
revoking the 12-year rule was to stem the citys
insurance coverage liability for those retirees.78
who was in charge of the citys lobbyists that worked

toward passage of these pension changes in the state
Legislature, secured a 79 percent increase.82 (His
estimated pension benefit, if he serves six years as
chief administrative officer, will rise to $131,000
per year, up from $73,000 per year under the prior
pension rules).
Texas
The current funding problem faced by

Houston can be traced to 2001 when then- Mayor
Lee Browns administration agreed to the recommendations forwarded by a pension board whose
majority was made up of current and former city
employees. These recommendations flowed from
a report conducted by the consulting firm Towers
Perrin, which indicated that Houston would not have
to contribute more than 14 percent of its payroll to
the pension program with the added pension incentives; but, late last year, the firm reconfigured its
numbers and informed the city that it would now
have to contribute the considerably higher 32
percent of payroll toward the new pension plan. In
fact, after the pension board secured increases in
benefits from the city back in 2001, retirees with
25 years of service secured 89 percent of their final
annual income compared to a mere 53 percent in
1993; also, the revised program only required 20
years of service to qualify for 65 percent of income,
while other comparable cities require between 25
and 35 years. Consequently, in the spring of 2004,
city officials were feverishly negotiating with the
pension board to radically slash the upcoming
years city contribution to the pension fund, which
is calculated to be $152 million instead of this years
$55 million.
The Teachers Retirement System of Texas

(TRS) is one of the largest retirement plans in the
country and for the fiscal year that ended August 31,
2003, the plan recorded an impressive 11.3 percent
market return on its assets.79 The fiscal 2003 growth
rate followed back-to-back losses in 2001 and 2002,
and at the end of the latest fiscal year, system participation included 1,356 reporting employees and
1,080,768 members and retirees. Net assets of the
plan were $77.6 billion compared to $71.7 billion at
the close of the prior fiscal year (2002).
Notwithstanding the aforementioned positive
information from the TRS, news from some of the
other public retirement plans in the state has not
been as encouraging. Specifically, in late February
2004, the city of Houston announced that its main
pension program had a billion dollar funding shortfall because benefits had been boosted to heights
that will enable many employees to earn more in
retirement than they did while working.80 In fact, a
few will even retire as millionaires. According to
reports, city taxpayers will have to set aside nearly
$100 million into the fund next year to adequately
reduce the shortfall and, furthermore, the city cannot
reduce benefits for any employee with at least five
years service, given a Texas constitutional amendment approved by voters last year.
According to a consultants report assessing the
pension woes troubling Houston, the citys pension
plan is far more generous than those available in
comparable cities such as Dallas, Phoenix, Denver
and Philadelphia. For instance, employees who
work 25 years and four months receive 90 percent
of their final salary in retirement, plus Social Security payments that will place them well over 100
percent of their final salary. In addition, after the
employees die, their spouses continue to receive
this full pension amount until their own deaths.
Finally, under the previously described DROPs,
some longtime city employees will garner million
dollar payouts along with their monthly pension
benefits. There also were reports that the official in
charge of negotiating changes to the citys pensions
(when these enhanced benefits were introduced a
few years ago) nearly tripled his own retirement
benefits.81 Furthermore, a former city attorney,
In a desperate attempt, city officials in Houston

decided in late March 2004 to seek the support of
local voters in exempting the city from a state constitutional amendment (passed in September 2003)
that barred Texas cities from reducing municipal
employee pensions. Proposition 15 passed in
September 2003 when proponents argued that it
was a matter of fairness and that 41 other states
had similar amendments in their constitutions. The
origins of Proposition 15 in Texas in the 1930s lay
in the decision of Dallas city officials to trim police
pensions. According to reports, Dallas is another
city with an underfunded pension fund, though the
situation there is not as serious as the one faced by
Houston. On May 15, 2004, Houston voters overwhelmingly approved Proposition 1, which allowed
the city to opt out of the previously-described
constitutional amendment prohibiting the city from
cutting pensions.83
Virginia
In the fall of 2003, while preparing for the

2004 legislative session, the Virginia Retirement
Systems (VRS) nine overseers disclosed that the
state and local governments would have to locate
between $534 million and $546 million to buttress
the fund that pays public worker pensions over
the 2004-2006 biennium.84 This was yet another
complication in setting priorities for a severely
stressed Virginia budget. Among the measures
discussed at this time were reinstating a requirement that state employees contribute to the cost
of their retirement; since the early 1980s, the state
had picked up that expenditure. Given the political
fallout associated with such a move, one possible
compromise that was discussed was requiring only
new public employees to pay this added expense.
Another cost-cutting measure discussed involved
considering less costly alternatives to the traditional
defined benefits program provided by the VRS.
By July 2004, VRS announced that it had
recovered nearly all of the losses experienced during
the recession and the crumbling stock market in the
initial years of the decade.85 At this time, the value
of VRS stood at $39.1 billion (down slightly from
the $40.1 billion level reached in March 2004) and a
scant $1.5 billion short of the $40.6 billion reached
at the markets peak in March 2000. Investment
returns from VRS are necessary to provide benefits
to 113,569 retirees because cash contributions alone
from state and local governments are insufficient to
cover monthly pension checks. As of mid-July
2004, a total of 317,343 public workers were relying
on VRS to assist them with their retirement plans.
West Virginia
West Virginia is another state that faces serious

challenges in fully funding its public sector retirement systems. During this past legislative session,
there were a number of developments concerning
the issue as lawmakers grappled with devising an
adequate response to this serious financial crisis.
As carried out in a number of states, Governor
Wises administration sought to sell almost $4
billion in bonds to offset the mounting shortfalls
in a number of state pension programs, including
plans for teachers, state troopers and members of
the judiciary.86 While the bond sale, as a strategy
to raise funds, had surfaced during the administration of former Governor Underwood, the current
governor issued an executive order to carry out the
sale. According to advocates of the sale, Governor
Wise wants the almost $4 billion bond sale to replace
a 40-year plan that requires the state Legislature to
devote ever-increasing amounts from the state
budget every year toward these pension funds. For

instance, under the states current payment plan, the
unfunded portion of the pension plan grows from
$381 million this year to $634 million in 2033-34,
the last year of the 40-year plan. According to
Governor Wise and proponents of the bond issue, if
the bond issue was allowed to progress, the favorable interest rate environment currently in play
would enable the state to slash 10 years off the
payment plan and save $1 billion.
In response, the state auditor and treasurer
sought to stop the bond sale on the grounds that the
sale entailed new debt for the state and that the state
constitution required voters to approve the issue
of any new debt. Proponents of the bond sale had
maintained that the bond sale did not involve new
debt and that it was merely refinancing old debt. In
response, a Kanawha circuit judge ruled in favor of
the proponents indicating that the bond sale could
proceed. Both the treasurer and auditor indicated
that they would appeal this decision all the way to
the state Supreme Court and most recently, as of
early August 2004, Governor Wise and his acting
secretary of administration had filed a motion to
shorten the ordinary four-month appeal period that
would apply for an appeal from a final order of the
Circuit Court of Kanawha County.
In early September 2004, while hearing arguments in the case, the state Supreme Court expressed
big doubts about whether the governors almost
$4 billion pension bond proposal can evade the state
constitutions ban on the state assuming additional
debt without voter approval.87 In turn, Governor
Wises attorney maintained that the proposal is an
effort to refinance existing debt, not take on additional debt, and that the existing debt was brought
on when the state failed to adequately fund these
retirement plans in dire budget years. The governors attorney also argued that a 1997 constitutional
amendment approved by the voters permitted investments in the market and stressed that the proposed
bond sale amounted to such a move.
Another issue related to public sector pensions
that came up during the 2004 legislative session
involved a provision in a bill that would have
enhanced retirement benefits for a small number of
government employees.88 This bill (SB 563, HB
4563) would have helped certain state employees,
like legislators, who may have made a higher salary
while working in another state government job.89
Governor Wise vetoed this bill indicating that the
states pension plans could not afford to increase
benefits; in addition, the lead sponsor of this bill in
the Senate, along with a number of other senators,
indicated their opposition to this particular provision that was added on subsequently and indicated
that they would urge the governor to veto it, which
he did.90
Another measure debated by the Legislature
during the 2004 session involved merging the
states two troubled teacher retirement programs,
the Teachers Defined Contribution Retirement
System and the older Teachers Retirement System.91
A merger was envisaged to boost the older plans
assets by about $500 million alongside shaving off
$1.9 billion off payments owed under a 40-year plan
to eliminate this plans unfunded liability. However,
the merger effort was unsuccessful.
Wisconsin
In a measure adopted by a number of other

states and localities, Wisconsin recently sold pension
liability bonds. The $1.8 billion bond offered by the
state was deployed to eliminate the states obligation for both retirement and sick leave payments.92
In particular, the states sick-leave obligations had
grown in alarming proportions and in an effort to
stem the growing tide of red ink in this expenditure
item, the state set up an innovative financing strategy
to raise capital. Given that the state constitution
forbids using general obligation bonds for operating
expenses, Wisconsin issued appropriation bonds,
i.e., bonds backed by the pledge to repay bondholders through an annual appropriation. In general,
appropriation bonds are not as sellable as general
obligation bonds because this category of bonds
is linked to the legislative process. For instance,
the failure of the Legislature to pass a budget on
schedule could potentially derail the returns owed to
bondholders. Yet, the state worked hard to assuage
the concerns of bondholders by stressing that under
the states continuing budget authority, if the Legislature had not adopted a new budget by July 1, the
executive branch could spend money based on the
previous years budget. Wisconsin diverged from
the usual pension bond offerings in another important way. Normally, many pension bonds use money
raised at a low rate to make money at a higher rate
in the equity market; however, Wisconsin decided
not to pursue that strategy and decided to treat it as a
refunding obligation. Given that long-term interest
rates were below the 8 percent actuarial charge on
the unfunded liability, Wisconsin was guaranteed a
level of savings.
As described on several occasions, pension
sweeteners adopted by cities when the stock
market was barreling ahead in the late 1990s have
posed serious financial dilemmas to a number of
these jurisdictions in the troubled fiscal years of this
decade. Milwaukee, Wisconsin, is another jurisdiction facing the onerous burden of additional pension
costs and is also the only locality where prosecutors have brought about charges against an official
for misrepresenting the true cost of these added
benefits.93 Consequently, the former personnel
director of Milwaukee County pleaded no contest
to one felony count of misconduct in public office
and two misdemeanor counts in March 2004. Court
documents revealed that at least some officials were
contemplating their own retirements as they devised
ways to qualify for new benefits. In fact, residents
of the county were so enraged to learn that supplementary pension accounts would transform some
officials into millionaires that they held a recall
election and voted seven county supervisors out of
office. Under the previously described DROP, in
Milwaukee, pension officials guaranteed 9 percent
returns on their escrow accounts in addition to other
measures to enhance both the lump sum payouts and
the monthly annuity checks.
Conclusion
or some years now, a variety of interest groups and concerned citizens have emphasized that policymakers need to initiate concrete steps to prepare for the graying of America and the huge increase
in the number of retirees. In fact, the number of people in the United States aged 65 and over is
expected to nearly double by 2030; specifically, that age group is forecast to grow from about 13
percent of the total population in 2000, to 20 percent in 2030, and to remain above 20 percent for at least
several decades thereafter.1 In this context, there is growing concern that more attention needs to be directed
toward retirement planning and developing a retirement infrastructure that has the capacity to absorb the
retirement needs of all Americans. However, detailed analysis of the different elements comprising the
nations retirement architecture indicates some disturbing trends, a development that should cause a greater
degree of consternation among both citizens and policymakers across the country.
Financial planners, as cited earlier, often
recommend the three-legged stool concept in planning for retirement. Each leg of the stool is supposed
to represent a source of income in retirement, and
the goal is to cumulatively attain a standard of living
comparable to, if not slightly below, the one experienced prior to retirement. In this analysis, if the
first leg of the stool is Social Security income, the
other two legs of the stool refer to personal savings
and retirement or pension system income. Unfortunately, as indicated in the body of this report, a
close review of national financial and demographic
trends reveals that all three legs of this metaphorical
retirement stool remain rickety, a development that
could seriously endanger the retirement plans of a
majority of Americans.
Social Security payments remain critical for
most retirees; these payouts make up about 40
percent of the total income of people 65 and over.
In addition, about two-thirds of those people receive
at least half of their income from Social Security,
and one-third receive at least 90 percent.2 In fact,
in 2008, a scant four years away, the first cohort of
baby boomers will reach 62 and be eligible to claim
Social Security benefits; a few years later in 2011,
they will be eligible to claim Medicare benefits.
However, the Social Security Trust Fund will start
paying out more than it takes in by 2018 and be
depleted by 2044, based on current projections,
while Medicare will start running deficits in 2013
and run out of money in 2026 requiring remedial
action from policymakers.3
Unfortunately, alongside the tenuous longterm financial viability of Social Security, there
are serious problems associated with the other two
legs of the symbolic retirement stool. In fact, it is
becoming increasingly clear that relying on personal
savings to bolster retirement income is not a realistic option for most Americans. According to the
federal government, during the past few decades,
savings as a proportion of disposable income has
declined steadily. Specifically, the nations personal
savings rate has plummeted from 11.2 percent of
disposable income in 1982 (the highest level in
the past three decades) to 1.7 percent in 2001, a
precipitous decline indeed, before rising marginally to 2 percent in 2003.4 Further compounding
this rapidly shrinking personal savings rate is the
mountain of debt accumulated by most American
households in recent years. Since 1999, household
debt has leapt from 70 percent, to nearly 83 percent
of the current gross domestic product.5 Moreover,
consumers racked up $1.1 trillion in new mortgage
and consumer debt between the end of 2001 and the
third quarter of 2003, bringing the total of consumer
and mortgage loans held by the Federal Deposit
Insurance Corporation (FDIC) insured institutions
to $2.6 trillion.6
Finally, the remaining leg of the figurative
retirement stool, income flows from both public and
private pension plans, also is wobbly. The asset base
of both private and public sector pension plans experienced substantial erosion as a result of the bleak
economic tide that enveloped the country in the
initial years of this decade. For 10 years, between

March 1991 and March 2001, the American economy
experienced an unprecedented growth spurt and the
positive flows of this expansion reflected very well
on the asset base of both private and public sector
retirement plans. However, in mid-2001, the U.S.
economy began lurching to a stop, and the tragic
events of September 11, 2001, pushed the already
teetering economy into recession. Despite technically emerging from this recession after two quarters, the lingering effects of the economy continued
for several years later with job creation, in particular,
being very tepid. Compounding these economic
trends were a number of additional problems that
resulted in the equity markets taking a walloping
for almost a three-year period, 2000 through 2002.
The combination of these negative developments
saw the steady erosion of both public and private
sector retirement system portfolios.
The Pension Benefit Guaranty Corporation,
the federal organization that protects the pensions
of 44.3 million American workers, indicated earlier
this year that it was running a deficit of $11.2 billion
and warned about its ability to protect private
pensions in the future.7 Deficit forecasts for 2004
continue to be alarming with an increasing number of
corporations seeking to be trusteed by the PBGC.
Major corporations ranging from Bethlehem Steel
to United Airlines to a host of others indicated their
inability to meet their pension obligations to their
retired employees and sought the protection of the
PBGC in meeting these retirement expenditures.
At the public pension level, the scenario
remains bleak too. These economic and stock
market developments, alongside crushing unfunded
liability growth, according to the National Association of State Retirement Administrators, resulted
in the actuarial funding levels of public retirement
plans plunging to lower levels in fiscal year 2002,
compared to fiscal year 2001.8 Specifically, between
the fiscal years 2001 and 2002, the actuarial value
of public retirement systems assets increased by 3
percent, or $57 billion; in contrast, liabilities grew
by $154 billion, or 8.1 percent. Then, between
fiscal years 2002 and 2003, while actuarial assets
grew from $2.05 trillion to $2.06 trillion, actuarial
liabilities exploded from $2.1 trillion to $2.3 trillion.9 Also, studies released by Wilshire Associates
in March 2003 and 2004 confirmed this trend, indicating that the funding ratio (the ratio of pension
assets-to-liabilities) for all state pension plans
combined declined from 106 percent in 2001, to 91
percent in 2002, to 82 percent in 2003; the median
(50th percentile) state pension plan had a funding
ratio of 79 percent in the March 2004 survey.10
In the last few years, these public retirement

funds have attracted a great deal of attention, sometimes because of their shrinking asset base and
sometimes for a variety of other reasons.11 From
an 1857 retirement plan established in New York
City to assist policemen injured in the line of duty,
according to the latest federal data (June 30, 2002),
the number of state and local government pension
plans across the nation had proliferated to 2,670,
serving every stratum of state and local government. The importance of payments to beneficiaries
from these state and local government retirement
systems is a given, and the onus is on policymakers
to ensure the solvency and financial health of these
plans. Notwithstanding the $2.2 trillion in cash and
investment holdings in these retirement systems at
the end of fiscal year 2002, with more than 17.3
million total members and payments to over 6.2
million beneficiaries during this period, there is
considerable interest in ensuring that this component of the U.S. retirement system remains on firm
financial ground and continues to flourish in coming
years.12The fact that about one-fourth of state and
local government employees do not participate
in Social Security, opting to channel their Social
Security payroll deductions to their state or local
government retirement plans,13 only amplifies the
importance of the financial viability of these public
plans.
The stresses faced by state and local government retirement systems in the aftermath of what
has been described as the worst fiscal crisis to
sweep over states in more than six decades, and the
continued sluggish performance of the economy, is
illustrated by reviewing data over the most recent
10-year period. Specifically, total receipts plunged
precipitously by 102 percent between June 1998
and June 2002 ($263.4 billion to -$6.1 billion),
while they grew by 109 percent between June 1993
and June 1998 ($125.9 billion to $263.4 billion).
Conversely, total payments by state and local
government retirement systems more than doubled
between June 1993 and June 2002 ($52.6 billion to
$122 billion).
In addition to the information gleaned from the
federal government, this report analyzes information obtained by means of a survey forwarded to 190
state and local government retirement plans in the
50 states and the District of Columbia. Of these 190
plans, 105 plans provided information for at least
three of the five questions posed to them. Based on
the survey responses, 36 of the 105 plans specifically
had an asset base greater than 10 billion dollars but
less than 100 billion dollars; two additional plans
had an asset base greater than 100 billion dollars.
In terms of the number of annuitants (members

or their family members receiving benefits) as a
percentage of actives (members continuing to work
and contribute), the survey indicated that a majority
of the plans (70 plans) fell between 20 percent and
69.9 percent. The survey also revealed that in terms
of actuarial funding ratios, i.e., the actuarial value of
a pension plans assets divided by its actuarial liabilities, only 25 of the 93 plans that provided information (of the 105 plans, 12 plans did not provide
either the value of their actuarial assets or liabilities
or both) were fully funded, with the remaining 68
plans underfunded to varying degrees.
between 2000 and 2002, public sector retirement

systems hemorrhaged great amounts of cash and
added to the fiscal pressures faced by states and
localities as they rushed to meet essential obligations. Yet, it is important that policymakers continue
to monitor the performance of these portfolios in the
context of possible negative economic times in the
future. Also, in the context of the professed weaknesses in two of the three major sources of retirement revenues for Americans, Social Security and
personal savings, it is imperative that financial deficiencies do not become endemic in the remaining
revenue source, retirement systems.
State legislatures play a critical role in the

administration of these retirement plans given
the fact that they are responsible for some of the
appointments to the boards of trustees, most often the
administrative entity charged with the responsibility
of managing and planning investments and benefit
payouts. Hence, these trustees play a pivotal role
in ensuring the continued growth of the retirement
system funds taking into consideration a number of
factors, such as the active-to-inactive member ratio,
active participants to number of retirees receiving
payments ratio, the overall investment climate
(national and international) and ways to tweak an
investment portfolio to diminish negative economic
trends. One example where a legislature immersed
itself in the activities of a state retirement system
involves Maryland. After learning about their state
pension funds abysmal record, Maryland legislators and other state policymakers began a series of
investigations and explorations into determining the
reasons for this poor performance. In response to
these queries and concerns, comprehensive reforms
were introduced, both statutorily and organizationally, including a number of senior officials being
relieved of their duties. In addition, federal authorities indicated that they had initiated a criminal
investigation of a number of former employees,
an investigation that eventually resulted in indictments, trials and convictions for several employees
for fraud. A number of other legislatures also delved
into the affairs of their public retirement systems
either to buttress their finances through a bond
issue (California, Illinois, Kansas, for instance) or
to initiate reforms to enhance their efficiency and
effectiveness (Louisiana).
Policy Options and Considerations
If the performance of the last few years is

any indication, the financial fortunes of state and
local government retirement systems will continue
to garner a great deal of attention from both policymakers and retirees alike. With the economy
faltering during the initial few years of this decade,
particularly the drubbing taken by the stock markets
Ensuring both the short-term and long-term

financial viability of the different elements in
Americas retirement systems, both private and
public, remains of paramount importance. It is a
challenge and responsibility that extends to policymakers at every level of governmentfederal, state
and localand every American. In fact, first resuscitating and then sustaining the financial health of
our different retirement income flows provides the
underpinnings for the foundation of the United States
as an economic, political and military powerhouse
in the global context. Consequently, it is imperative
that policymakers and citizens alike initiate efforts
now to bolster the shaky pillars of Americas current
retirement system so that the costs of making these
fundamental reforms in the future are minimized.
In reviewing and analyzing the data contained
in this report, it is quickly apparent that all three legs
of the proverbial retirement stool are unreliable and
require urgent attention. This report highlights the
weaknesses in Social Security, Medicare and the
PBGC; the abysmally low savings rate in contemporary American society coupled with the crushing
level of consumer debt; and, finally, the severe
losses suffered by a majority of the public sector
retirement plans in recent years due to the souring
economy, collapse of the equities markets, and occasionally lax oversight. The grim news percolating
from these different retirement sources in recent
years accentuates the importance for both citizens
and policymakers to be energized about initiating
remedial action. The fact that in a scant four years,
the first wave of baby boomers will begin retiring
in huge numbers, precipitating tremendous fiscal
strains on these different retirement sources, further
reinforces the urgency for these reforms.
In formulating comprehensive policy responses
to this nascent crisis, it is important to consider the
following issues.
In order to overcome the severe disadvantages

associated with an extremely low savings
rate, is it time for policymakersat all levels
of governmentto begin an assortment of
educational and incentive programs to first,
instill the importance of savings, and then
increase savings rates? These programs could
be introduced into the curriculum of schools
throughout the country, possibly as early as the
elementary level, building up in complexity as
children proceed through the school system.
At the other end, even greater incentives for
individuals to save for retirement could also
potentially be offered by the different levels of
government. A quick comparison of household
savings ratios among the worlds three largest
economic regions reinforces the fact that the
United States lags significantly in this area,
a statistic that should spur remedial action at
every level of our society. While it is important
to note at the outset that international comparisons of statistics are fraught with difficulties,
it still is relevant to highlight the trend that the
United States trails the Euro area and, Japan
significantly, on this index. According to a
report released in June 2004, the household
saving ratio in 2002 in the Euro area loomed at
about 15 percent, ahead of the approximately
6.5 percent in Japan and significantly ahead of
the United States ratio of about 2 percent.14 The
United States has to improve its performance in
this critical area and the sooner policymakers
initiate programs to do so, the better.
In order to avoid a financial catastrophe related
to Social Security, Medicare and the PBGC in
the near future, is it time for policymakers,
primarily at the federal level, to engage the
public in a substantive debate about fundamental reforms? The sooner this discussion
is initiated the better because the potential for
these federal programs to quickly convert from
ticking time bombs to explosive issues looms
large. While there has been some peripheral discussion about reforming the Social
Security and Medicare systems, the PBGCs
plight has largely been out of the public arena.
The PBGC, which is mandated to protect the
pensions of bankrupt and failing corporations, remains severely underfunded and an
ever increasing number of corporations, from
small, relatively unknown ones to the more
famous, established ones, have sought the
protection of this federal agency. Bethlehem
Steel, Consolidated Freightways, Acme Steel
and the National Steel Pellet Company are a
mere fraction of the companies covering more
than 500,000 Americans that have failed in

the past three years and been taken over by
the federal government. The level of pension
underfunding in the airline industry alone is
estimated to be about $31 billion on a termination basis at the end of 2003, a staggering
amount for just a single industry. Cumulatively, the level of pension underfunding for
the companies seeking the protection of the
federal government could be gargantuan,
possibly eclipsing the magnitude of the federal
governments bail out of the savings and loan
industry in the 1980s. At a time when the fiscal
demands being leveled at the federal government are increasing exponentially, and at a time
when the federal governments budget situation is awash in a sea of red ink, the potential
for these ticking fiscal time bombs (Social
Security, Medicare and the PBGC) to explode
remains a most alarming possibility.
Finally, is it time for state policymakers and

citizens to closely and continuously monitor
the performance of state and local government
retirement funds so as to avoid the financial
pitfalls faced by some entities with the introduction of DROPs, the mismanagement of
fund assets, the investment choices made by
fund managers, the practice of deferring contributions to retirement funds during a time of
budget shortfalls among other issues? Another
important development related to these public
sector retirement funds in these fiscally trying
times involves the administrative entities of
these plans whittling away at the benefits
they offer to lower their expenditures. Will
this emerging trend affect the ability of state
and local governments to attract top-flight
candidates to staff public sector positions?
The case could be made that the ability of the
public sector to attract high-caliber employees
pivoted around the benefits offered in the public
sector from the defined benefit retirement plan
to healthcare coverage, both before and during
retirement.
These policy considerations related to Americas retirement systems remain of great importance
as policymakers and citizens deal with the onset of
an aging population and a series of other, complex
policy issues that will confront the nation in the next
few decades. The sooner we begin the discussion
about strengthening the rickety legs of our figurative
retirement stool, the better.
Methodology
his report reviews the relative position of the public retirement systems in all 50 states (and the
District of Columbia) by drawing largely on information released by the U.S. Department of
Commerce in December 2003 covering 2,670 public retirement plans for the period July 1, 2001
to June 20, 2002 (fiscal year 2002). The report also will extract information from data released by
the U.S. Department of Commerce in prior years.
In addition, the report presents information secured from a survey forwarded to 190 plans in all 50
states by The Council of State Governments (See Appendix A). The latter information deals with the market
value, number of active participants and annuitants and the actuarial assets and liabilities of the different
plans. This survey was initially faxed, emailed or mailed to the administrators of these 190 plans on March
23, 2004, with a response deadline of April 19, 2004. For those plans that did not respond by April 24,
further attempts were made to obtain responses with an extension in the deadline to May 7, 2004. Of the 190
plan administrators that initially were contacted, 85 plans, or 45 percent, did not respond to these repeated
attempts. The remaining 105 plans, or 55 percent of the plans contacted, did provide responses to at least
three of the five questions forwarded. Twelve plans did not provide information for at least one of the five
questions. In an effort to confirm and provide an opportunity for the respondents to update the information
provided previously, all 105 plan administrators were contacted again on July 19, 2004. On this occasion,
the plans administrators were asked to confirm the information previously provided and update the information if necessary.
Based on these efforts, importantly, the survey elicited information from at least one plan in 46 states,
information from which is presented in this report. No plan from four states (Hawaii, Michigan, Rhode Island
and Vermont) responded to the survey. The plans not responding to the survey are presented in Table 29.
State and Plans that Did Not Respond to the Survey of Public Sector Retirement Finances
State
AK 1
2
3
4
5
6
7
AR
10
Arkansas Fire and Police Pension Review

Board
Arkansas Public Employees Retirement
System
Arkansas Teacher Retirement System
11
12
Corrections Officer Retirement Plan

Elected Officials Retirement Plan
8
9
AZ
Plan Name
National Guard/Naval Militia Retirement
System
Alaska Supplemental Annuity Plan
Alaska Deferred Compensation Plan
Elected Public Officers Retirement System
Teachers Retirement Board
14
15
Part-time, Seasonal or Temporary Employee

Retirement Program
Savings Plus Program
California State Teachers Retirement System
CO
16
Fire & Police Pension Association of Colorado
CT
17
18
19
20
21
22
Alternate Retirement Program (TIAA-CREF)

Retirement and Benefits Services Division
State Employees Retirement System Tier I
State Employees Retirement System Tier II
State Employees Retirement System Tier IIA
23
District of Columbias 401(a) Defined

Contribution Pension Plan
CA
DC
13
DE
24
25
Delaware Match Plan

State of Delaware - Office of Pensions
FL
26
Deferred Retirement Option Program

State University System Optional Retirement
Program
State Senior Management Service Optional
Annuity Program
27
28
GA
HI
29
30
31
Georgia Defined Contribution Plan

State Employees Assurance Department
Teachers Retirement System of Georgia
32
Employees Retirement System of the State of

Hawaii
IL
State
33
34
35
36
IN
37
38
Plan Name
Illinois Public Pension Fund Association
State of Illinois Employees Deferred
Compensation Plan
State Retirement Systems of Illinois
State of Indiana Deferred Compensation and
Matching Incentive Plans
Indiana Public Employees Retirement Fund
40
Kentucky Public Employees Deferred

Compensation Authority
Kentucky Teachers Retirement System
LA
41
42
Sheriffs Pension & Relief Fund

School Employees Retirement System
MA
43
Contributory Retirement Appeal Board

Massachusetts Association of Contributory
Retirement Systems
Massachusetts Port Authority Employees
Retirement System
Pension Reserves Investment Management
Board
Public Employee Retirement Administration
Commission
KY
39
44
45
46
47
ME
48
49
50
Deferred Compensation 457 Program

Maine Municipal Employees Health Trust Retiree Coverage
Maine National Guard Retirement Benefits
52
53
54
55
56
Deferred Compensation and Defined

Contribution Retirement Plans
Judges Retirement Board
Office of Retirement Systems
Public School Employees Retirement System
State Police Retirement Board
MN
57
58
59
Minnesota State Deferred Compensation Plan

State Board of Investment
State Retirement System
MT
60
61
PERS Defined Benefit Retirement Plan

Montana Teachers Retirement System
NE
62
University of Nebraska Basic Retirement Plan

University of Nebraska Deferred
Compensation Plan
University of Nebraska Supplemental Plan
MI
51
63
64
State
Plan Name
University of New Hampshire Retirement
System
NH
65
NM
66
Educational Retirement Board
NY
67
68
State Deferred Compensation Plan

State and Local Retirement Systems
OH
69
70
71
Deferred Compensation Program

Public Employees Retirement System
School Employees Retirement System
OK
72
73
Firefighters Pension and Retirement System

SoonerSave Deferred Compensation Plan
OR
74
76
Oregon Savings Growth Plan

Oregon University System - Optional
Retirement Plan
Oregon University System - Tax Deferred Plan
PA
77
Municipal Retirement System
RI
78
Employees Retirement System
SD
79
Supplemental Retirement Plan
TX
80
Texa$aver Program
VT
81
82
83
Municipal Employees Retirement System

WA
84
WI
85
75
table 29
Appendix A: Survey Device

Representative James E. Pete Laney
Texas
Chairman
Senator Shane Broadway
Arkansas
Chairman Elect
Semate President David Willaaims
Kentucky
Vice Chairman
Colleen Cousineau
Executive Director
Kenneth Fern, Jr.
Deputy Director
P.O Box 98129
Atlanta, Georgia 30359
(404) 266-1271 / FAX: (404) 266-1273
www.slcatlanta.org
The Council of State Governments (CSG)
Special Series Report on Public Retirement Systems

Tens of millions of Americans are seriously under prepared to meet their financial needs in
retirement. As many as 40 percent of Americans have saved almost nothing for retirement.
National Retirement Planning Coalition, February 2004
Severe weaknesses in the financial health of the nations public retirement systems rank
as yet another force currently buffeting state and local government finances. Further compounding
the problems faced by these public retirement funds are the following developments: the precarious
financial position of private-sector pensions and the federal Pension Benefit Guaranty Corporation;
the looming shortfalls expected in the Social Security and Medicare programs in coming decades;
and the low personal savings rates of most Americans coupled with the high rates of consumer and
household debt. Given that the baby boomer generation is rapidly nearing retirement age and that
Americas senior population is growing faster than the number of younger workers needed to cover
their retirement needs, policymakers across the country are paying a great deal of attention to this
unfortunate confluence of events.
In order to provide policymakers with a comprehensive account of the state of the nations
public retirement systems, The Council of State Governments is gathering information directly
from the different retirement plans. The information from the specific plans will be analyzed and
presented in a report that will be forwarded to officials in all three branches of government. In
addition to the information from the states, information secured from the federal government,
specifically the U.S. Department of Commerce and the Pension Benefit Guaranty Corporation, along
with other research material, will be featured in the report.
Please respond to the following questions and fax to Mr. Sujit CanagaRetna, c/o The
Council of State Governments at 404-633-4896. A response by April 19, 2004, will be greatly
appreciated. If you have any questions, please feel free to contact Mr. Sujit CanagaRetna at CSGs
southern office in Atlanta, Georgia at 404/633-1866 or scanagaretna@csg.org.
Thank you for your assistance in this valuable research project.
Please Provide Information for Each Plan on a Separate Page

Thank you
The Council of State Governments (CSG)
Special Series Report on Public Retirement Systems 2004 Survey
Alabama Arkansas Florida Georgia Kentucky Louisiana Maryland Mississippi Missouri

North Carolina Oklahoma South Carolina Tennessee Texas Virginia West Virginia
Appendix A Continued
Retirement Plan Name:

State:
Your contact information:
Name:
Title:
Phone Number:
Email:
(1) What is the market value of your plans assets?
Value
Month/Year
(2) How many actives do you have in your plan?

Number
Month/Year
(3) How many annuitants do you have in your plan?

Number
Month/Year
(4) What are your plans actuarial assets?

Value
Month/Year
(5) What are your plans actuarial liabilities?

Value
Month/Year
Please Provide Information for Each Plan on a Separate Page

Thank you
Appendix B: Cash and Investment Holdings of State

and Local Government Employee Retirement Systems
1993 and 2002 (Thousands of Dollars)
United States
State
Local
Cash and Deposits

Securities
Other Investments
Total
1993
2002
1993
2002
1993
2002
1993
2002
$66,192,708 $109,762,677 $774,314,992 $1,875,395,501 $68,813,123 $172,832,778 $920,571,814 $2,157,990,956
$48,855,709 $90,565,875 $621,807,472 $1,531,401,377 $60,262,351 $152,695,621 $741,741,645 $1,774,662,873
$17,336,999 $19,196,802 $152,507,520 $343,994,124 $8,550,772 $20,137,157 $178,830,169 $383,328,083
Alabama
State
Local
Alaska
State
Local
Arizona
State
Local
Arkansas
State
Local
California
State
Local
Colorado
State
Local
Connecticut
State
Local
Delaware
State
Local
D.C.
Florida
State
Local
Georgia
State
Local
Hawaii
State
Idaho
State
Local
Illinois
State
Local
Indiana
State
Local
$1,664,539
$1,547,277
$117,262
$199,340
$180,341
$18,999
$1,168,972
$1,115,102
$53,870
$606,918
$576,787
$30,131
$10,251,915
$6,009,996
$4,241,919
$758,183
$547,639
$210,544
$800,008
$534,986
$265,022
$173,435
$139,984
$33,451
$0
$2,733,507
$2,334,935
$398,572
$790,951
$675,734
$115,217
$458,877
$458,877
$133,657
$129,454
$4,203
$5,080,522
$1,461,810
$3,618,712
$297,329
$273,354
$23,975
$1,370,209 $10,092,708
$1,216,817
$9,372,746
$153,392
$719,962
$354,961
$5,703,277
$354,444
$5,479,536
$517
$223,741
$973,285 $11,743,094
$822,106 $10,620,033
$151,179
$1,123,061
$692,093
$4,790,227
$665,074
$4,656,221
$27,019
$134,006
$12,039,122 $135,413,948
$5,787,320 $98,315,290
$6,251,802 $37,098,658
$916,858 $12,687,175
$723,083 $10,756,155
$193,775
$1,931,020
$576,927
$9,879,452
$440,706
$7,774,850
$136,221
$2,104,602
$109,013
$1,759,312
$91,183
$1,649,031
$17,830
$110,281
$394,470
$0
$5,072,053 $30,290,278
$4,506,492 $25,464,401
$565,561
$4,825,877
$1,439,891 $18,282,826
$1,060,163 $16,789,310
$379,728
$1,493,516
$309,892
$4,054,650
$309,892
$4,054,650
$187,186
$1,878,661
$186,790
$1,874,728
$396
$3,933
$3,766,504 $33,517,828
$2,133,945 $19,418,162
$1,632,559 $14,099,666
$2,782,365
$7,611,912
$2,706,052
$7,531,953
$76,313
$79,959
$19,477,032
$66,381
$17,932,120
$66,381
$1,544,912
$0
$7,091,368
$193,289
$6,726,486
$181,143
$364,882
$12,146
$24,464,405
$62,502
$22,855,434
$23,282
$1,608,971
$39,220
$11,083,327
$2,302
$10,812,933
$1,668
$270,394
$634
$342,571,350 $11,406,672
$253,728,364 $8,678,394
$88,842,986 $2,728,278
$27,698,427 $1,039,975
$23,745,786
$943,111
$3,952,641
$96,864
$19,390,018
$392,042
$15,183,885
$311,188
$4,206,133
$80,854
$4,785,456
$290,520
$4,284,819
$286,020
$500,637
$4,500
$1,726,493 $2,136,629
$90,800,518 $1,411,330
$79,774,154 $1,339,298
$11,026,364
$72,032
$53,623,832
$27,850
$49,470,942
$26,875
$4,152,890
$975
$7,207,364
$522,629
$7,207,364
$522,629
$6,099,679
$178,241
$6,085,688
$178,241
$13,991
$0
$84,080,738 $4,279,810
$49,060,776 $3,562,926
$35,019,962
$716,884
$14,808,082
$403
$14,680,140
$260
$127,942
$143
$1,335,253 $11,823,629
$1,335,253 $10,986,404
$0
$837,225
$1,501,385
$6,095,907
$1,493,773
$5,841,020
$7,612
$254,887
$248,824 $12,974,566
$226,907 $11,758,416
$21,917
$1,216,150
$1,273,523
$5,412,022
$1,273,427
$5,247,252
$96
$164,770
$32,922,681 $168,062,846
$20,947,637 $123,838,874
$11,975,044 $44,223,972
$6,070,456 $14,515,067
$5,302,324 $12,276,645
$768,132
$2,238,422
$2,686,252 $11,089,818
$2,618,702
$8,638,739
$67,550
$2,451,079
$482,298
$2,236,158
$481,688
$2,075,035
$610
$161,123
$3,970
$2,136,629
$6,850,209 $34,442,622
$6,657,908 $29,138,634
$192,301
$5,303,988
$28,297 $19,101,627
$7,841 $17,491,921
$20,456
$1,609,706
$619,734
$5,036,156
$619,734
$5,036,156
$33,450
$2,190,558
$33,450
$2,182,423
$0
$8,135
$7,407,808 $42,889,924
$5,577,246 $24,442,897
$1,830,562 $18,447,027
$6,738
$7,909,641
$6,092
$7,805,566
$646
$104,075
$22,182,494
$20,484,190
$1,698,304
$8,947,714
$8,574,703
$373,011
$25,686,514
$23,904,447
$1,782,067
$13,048,943
$12,751,434
$297,509
$387,533,153
$280,463,321
$107,069,832
$34,685,741
$29,771,193
$4,914,548
$22,653,197
$18,243,293
$4,409,904
$5,376,767
$4,857,690
$519,077
$2,124,933
$102,722,780
$90,938,554
$11,784,226
$55,092,020
$50,538,946
$4,553,074
$8,136,990
$8,136,990
$6,320,315
$6,305,928
$14,387
$95,255,050
$56,771,967
$38,483,083
$17,597,185
$17,392,284
$204,901
Appendix B Continued
Iowa
State
Kansas
State
Local
Kentucky
State
Local
Louisiana
State
Local
Maine
State
Maryland
State
Local
Massachusetts
State
Local
Michigan
State
Local
Minnesota
State
Local
Mississippi
State
Missouri
State
Local
Montana
State
Local
Nebraska
State
Local
Nevada
State
Local
New Hampshire
State
Local
New Jersey
State
Local
New Mexico
State
New York
State
Local
North Carolina
State
Local
$137,040
$137,040
$86,530
$51,768
$34,762
$1,165,182
$1,155,953
$9,229
$1,210,310
$1,111,919
$98,391
$180,077
$180,077
$366,982
$287,579
$79,403
$669,437
$93,302
$576,135
$5,137,517
$4,156,957
$980,560
$560,571
$237,996
$322,575
$19,446
$19,446
$890,033
$635,620
$254,413
$52,956
$52,341
$615
$152,750
$75,737
$77,013
$276,253
$276,225
$28
$456
$0
$456
$22,151
$1,582
$20,569
$391,510
$391,510
$5,125,285
$1,670,364
$3,454,921
$6,087,501
$6,078,804
$8,697
$118,145
$5,380,027
$108,138
$5,380,027
$519,058
$3,711,372
$495,292
$3,243,429
$23,766
$467,943
$1,609,583
$7,942,299
$1,590,136
$7,784,433
$19,447
$157,866
$1,018,005
$9,928,854
$897,170
$9,111,757
$120,835
$817,097
$136,041
$2,069,227
$136,041
$2,069,227
$1,554,923
$2,238,913
$1,069,247
$0
$485,676
$2,238,913
$1,441,138
$9,013,805
$936,190
$4,413,001
$504,948
$4,600,804
$2,243,077 $24,156,839
$1,282,612 $15,132,008
$960,465
$9,024,831
$427,647 $14,876,873
$128,066 $12,664,731
$299,581
$2,212,142
$1,793,510
$96,898
$1,793,510
$96,898
$2,047,949 $14,050,509
$1,806,603 $11,563,069
$241,346
$2,487,440
$131,996
$2,010,188
$131,996
$2,010,188
$0
$0
$46,129
$2,362,315
$2,159
$1,335,416
$43,970
$1,026,899
$359,746
$4,243,691
$359,746
$4,228,552
$0
$15,139
$229,021
$6,666
$228,459
$0
$562
$6,666
$8,004 $26,473,979
$237 $26,431,485
$7,767
$42,494
$1,199,746
$5,208,931
$1,199,746
$5,208,931
$7,081,133 $112,468,861
$3,800,835 $66,826,215
$3,280,298 $45,642,646
$30,782,061 $14,962,927
$30,765,663 $14,832,637
$16,398
$130,290
$15,847,490
$967,080
$15,614,460
$967,080
$8,376,193
$448,126
$7,617,944
$446,230
$758,249
$1,896
$21,269,619
$392,213
$20,942,976
$392,200
$326,643
$13
$21,406,011
$124,946
$19,179,164
$124,946
$2,226,847
$0
$6,518,800
$56,722
$6,518,800
$56,722
$33,109,503 $14,968,504
$24,351,162 $13,768,921
$8,758,341 $1,199,583
$36,321,026 $4,168,700
$25,977,803 $3,943,687
$10,343,223
$225,013
$48,179,965 $2,304,054
$31,933,939 $1,992,380
$16,246,026
$311,674
$32,587,116 $3,263,532
$29,391,933 $3,136,884
$3,195,183
$126,648
$14,550,673
$59
$14,544,668
$59
$29,229,715
$211,943
$23,890,098
$140,621
$5,339,617
$71,322
$3,426,379
$118,386
$3,426,379
$118,386
$0
$0
$7,014,615 $1,191,278
$5,169,903 $1,173,174
$1,844,712
$18,104
$12,196,672
$389,236
$12,196,672
$389,236
$0
$0
$3,016,105
$0
$2,995,176
$0
$20,929
$0
$54,790,928
$785,990
$54,707,679
$783,108
$83,249
$2,882
$14,403,043
$0
$14,403,043
$0
$243,434,869 $4,910,191
$148,400,785 $4,910,181
$95,034,084
$10
$23,928,303
$266,555
$23,655,459
$266,232
$272,844
$323
$1,020,606
$6,484,147
$1,020,606
$6,484,147
$1,187,191
$4,246,029
$1,187,191
$3,741,428
$0
$504,601
$359,830
$9,499,690
$359,830
$9,332,586
$0
$167,104
$2,356,699 $11,265,735
$2,338,378 $10,349,349
$18,321
$916,386
$0
$2,306,026
$0
$2,306,026
$1,992,567 $17,749,193
$1,606,345 $14,056,500
$386,222
$3,692,693
$2,685,053 $13,853,875
$1,482,833
$8,451,219
$1,202,220
$5,402,656
$10,256,133 $31,616,109
$9,676,154 $21,281,346
$579,979 $10,334,763
$10,779,897 $18,702,864
$10,688,076 $16,039,613
$91,821
$2,663,251
$0
$117,497
$0
$117,497
$7,217,049 $15,157,591
$7,174,473 $12,344,235
$42,576
$2,813,356
$1,522,589
$2,181,531
$1,522,589
$2,180,916
$0
$615
$93,754
$3,593,718
$0
$2,471,703
$93,754
$1,122,015
$1,177,947
$4,909,179
$1,177,947
$4,894,012
$0
$15,167
$689,859
$7,122
$689,859
$0
$0
$7,122
$904,566 $27,282,124
$904,566 $27,216,179
$0
$65,945
$15,500
$5,600,442
$15,500
$5,600,442
$16,132,328 $122,504,335
$15,921,334 $73,406,760
$210,994 $49,097,575
$1,673,182 $21,316,986
$1,673,182 $21,177,677
$0
$139,309
$16,986,241
$16,743,204
$10,082,442
$9,300,427
$782,015
$23,239,032
$22,892,942
$346,090
$24,780,715
$22,414,712
$2,366,003
$6,654,841
$6,654,841
$36,656,993
$27,026,754
$9,630,239
$40,447,217
$28,396,826
$12,050,391
$60,679,175
$42,892,705
$17,786,470
$43,794,660
$40,208,075
$3,586,585
$16,344,183
$16,338,178
$38,494,713
$32,871,174
$5,623,539
$5,080,964
$5,080,964
$0
$7,154,498
$5,172,062
$1,982,436
$13,734,365
$13,734,365
$0
$3,934,985
$3,913,494
$21,491
$55,703,498
$55,612,482
$91,016
$15,618,289
$15,618,289
$266,648,330
$168,122,954
$98,525,376
$56,383,546
$56,094,304
$289,242
Appendix B Continued
North Dakota
State
Local
Ohio
State
Local
Oklahoma
State
Local
Oregon
State
Local
Pennsylvania
State
Local
Rhode Island
State
Local
South Carolina
State
Local
South Dakota
State
Local
Tennessee
State
Local
Texas
State
Local
Utah
State
Vermont
State
Local
Virginia
State
Local
Washington
State
Local
West Virginia
State
Local
Wisconsin
State
Local
Wyoming
State
Local
$45,572
$16,564
$29,008
$5,268,967
$5,107,882
$161,085
$794,025
$772,058
$21,967
$900,884
$893,482
$7,402
$1,977,225
$1,294,619
$682,606
$18,497
$3,554
$14,943
$2,981,866
$2,978,585
$3,281
$291,452
$287,382
$4,070
$258,921
$1,061
$257,860
$2,514,205
$1,975,597
$538,608
$206,639
$206,639
$76,784
$74,351
$2,433
$1,927,699
$1,580,609
$347,090
$1,001,063
$936,064
$64,999
$11,334
$0
$11,334
$256,115
$118,173
$137,942
$11,320
$8,593
$2,727
$48,120
$45,422
$2,698
$1,929,392
$1,804,045
$125,347
$649,333
$616,835
$32,498
$2,295,890
$2,287,020
$8,870
$3,543,279
$2,553,032
$990,247
$198,346
$171,462
$26,884
$2,932,440
$2,927,290
$5,150
$306,152
$304,237
$1,915
$2,179,875
$1,938,748
$241,127
$5,553,120
$4,723,695
$829,425
$603,072
$603,072
$49,281
$46,211
$3,070
$1,499,850
$939,053
$560,797
$3,287,805
$3,025,173
$262,632
$273,683
$247,526
$26,157
$431,112
$349,591
$81,521
$250,186
$247,550
$2,636
$1,171,977
$1,098,964
$73,013
$49,846,025
$48,961,522
$884,503
$5,219,814
$4,902,500
$317,314
$6,092,055
$6,092,055
$0
$35,374,256
$31,787,296
$3,586,960
$486,744
$299,093
$187,651
$11,133,997
$11,053,691
$80,306
$1,573,804
$1,491,779
$82,025
$11,163,182
$8,659,976
$2,503,206
$42,567,460
$37,656,347
$4,911,113
$3,842,892
$3,842,892
$791,641
$749,697
$41,944
$14,498,634
$11,262,699
$3,235,935
$13,554,331
$12,715,091
$839,240
$84,303
$0
$84,303
$26,066,062
$23,232,877
$2,833,185
$1,939,293
$1,911,923
$27,370
$2,171,537
$2,024,977
$146,560
$106,017,986
$103,628,498
$2,389,488
$13,962,917
$13,118,209
$844,708
$28,963,723
$28,957,303
$6,420
$69,407,948
$58,217,211
$11,190,737
$4,680,325
$4,096,366
$583,959
$17,912,932
$17,876,336
$36,596
$4,079,557
$3,876,030
$203,527
$25,712,835
$20,662,442
$5,050,393
$112,760,155
$101,917,546
$10,842,609
$10,534,626
$10,534,626
$1,939,785
$1,853,120
$86,665
$36,921,223
$29,816,436
$7,104,787
$31,680,065
$29,511,896
$2,168,169
$4,084,998
$3,952,447
$132,551
$55,157,782
$50,053,679
$5,104,103
$4,891,993
$4,837,321
$54,672
Source U.S. Department of Commerce, Bureau of the Census

$14,679
$13,103
$1,576
$2,569,914
$2,569,914
$0
$123,476
$116,167
$7,309
$1,660,377
$1,660,377
$0
$2,336,082
$2,181,472
$154,610
$10,725
$0
$10,725
$11,038
$5,044
$5,994
$32,656
$32,656
$0
$32,461
$0
$32,461
$872,505
$495,976
$376,529
$544,459
$544,459
$40,189
$39,939
$250
$1,052,811
$1,013,642
$39,169
$2,639,038
$2,598,158
$40,880
$8,892
$0
$8,892
$285,731
$259,981
$25,750
$0
$0
$0
$164,227
$164,009
$218
$13,345,987
$13,324,126
$21,861
$224,546
$224,546
$0
$5,258,178
$5,258,178
$0
$10,159,644
$9,841,952
$317,692
$1,695,022
$1,695,022
$0
$0
$0
$0
$475,660
$463,735
$11,925
$908,998
$352,582
$556,416
$2,020,961
$839,893
$1,181,068
$1,754,069
$1,754,069
$227,760
$227,730
$30
$3,560,589
$3,303,776
$256,813
$8,248,631
$8,164,662
$83,969
$0
$0
$0
$3,252,878
$3,060,496
$192,382
$0
$0
$0
$1,232,231
$1,128,633
$103,598
$57,686,802
$56,641,215
$1,045,587
$6,137,798
$5,790,725
$347,073
$8,653,315
$8,645,913
$7,402
$39,689,227
$35,263,386
$4,425,841
$515,963
$302,647
$213,316
$14,126,901
$14,037,320
$89,581
$1,901,500
$1,811,815
$89,685
$11,454,862
$8,661,037
$2,793,825
$45,964,742
$40,127,918
$5,836,824
$4,593,987
$4,593,987
$908,614
$863,988
$44,626
$17,509,170
$13,856,950
$3,652,220
$17,195,454
$16,249,314
$946,140
$103,500
$0
$103,500
$26,635,774
$23,634,666
$3,001,108
$1,950,611
$1,920,514
$30,097
$2,383,884
$2,234,408
$149,476
$121,293,365
$118,756,669
$2,536,696
$14,836,796
$13,959,590
$877,206
$36,517,791
$36,502,501
$15,290
$83,110,871
$70,612,195
$12,498,676
$6,573,693
$5,962,850
$610,843
$20,845,372
$20,803,626
$41,746
$4,861,369
$4,644,002
$217,367
$28,801,708
$22,953,772
$5,847,936
$120,334,236
$107,481,134
$12,853,102
$12,891,767
$12,891,767
$2,216,826
$2,127,061
$89,765
$41,981,662
$34,059,265
$7,922,397
$43,216,501
$40,701,731
$2,514,770
$4,358,681
$4,199,973
$158,708
$58,841,772
$53,463,766
$5,378,006
$5,142,179
$5,084,871
$57,308
Appendix C: Revenues for State and Local Government

Retirement Systems in 2002 (Thousands of Dollars)
State and
Level of
Government
Total Receipts
Employee
Contributions
United States
State
Local
-6,120,528
-8,448,868
2,328,340
27,544,022
23,006,094
4,537,928
Alabama
State
Local
Alaska
State
Local
Arizona
State
Local
Arkansas
State
Local
California
State
Local
Colorado
State
Local
Connecticut
State
Local
Delaware
State
Local
D.C.
Florida
State
Local
Georgia
State
Local
Hawaii
State
Local
Idaho
State
Local
Illinois
State
Local
Indiana
State
Local
Iowa
State
Local
-1,011,599
-1,112,852
101,253
-541,517
-521,928
-19,589
876,818
885,649
-8,831
-328,612
-337,604
8,992
-4,771,180
-3,520,996
-1,250,184
-2,189,064
-2,195,067
6,003
1,650,372
1,642,027
8,345
204,212
193,728
10,484
-142,124
51,098
513,755
-462,657
-857,361
-912,133
54,772
-260,142
-260,142
0
-135,387
-136,046
659
2,744,231
1,091,133
1,653,098
627,351
537,382
89,969
-210,081
-223,438
13,357
417,681
385,699
31,982
113,604
113,604
0
302,143
263,826
38,317
82,969
81,529
1,440
5,367,697
4,278,128
1,089,569
490,132
447,257
42,875
325,472
275,548
49,924
41,038
37,378
3,660
42,769
148,547
36,123
112,424
504,794
466,880
37,914
55,451
55,451
0
124,637
124,618
19
2,022,313
1,364,380
657,933
258,653
255,625
3,028
207,315
205,372
1,943
From State
From Local
Total
Government
Government
38,792,031
17,182,861
21,609,170
32,059,268
16,795,329
15,263,939
6,732,763
387,532
6,345,231
436,786
400,193
36,593
119,097
119,097
0
266,308
227,469
38,839
345,702
332,326
13,376
4,938,283
3,670,401
1,267,882
586,418
505,375
81,043
728,876
649,128
79,748
101,645
84,741
16,904
52,813
1,944,893
1,765,607
179,286
1,087,785
996,563
91,222
167,459
167,459
0
216,737
215,402
1,335
2,659,475
1,888,760
770,715
974,536
891,827
82,709
321,104
318,371
2,733
338,580
338,313
267
45,763
45,763
0
51,402
51,402
0
128,272
126,044
2,228
1,724,542
1,706,970
17,572
190,123
189,529
594
631,956
631,721
235
90,554
81,517
9,037
16
521,651
482,717
38,934
778,081
776,692
1,389
54,742
54,742
0
71,989
71,989
0
1,553,960
1,483,134
70,826
800,787
775,336
25,451
75,243
75,243
0
98,206
61,880
36,326
73,334
73,334
0
214,906
176,067
38,839
217,430
206,282
11,148
3,213,741
1,963,431
1,250,310
396,295
315,846
80,449
96,920
17,407
79,513
11,091
3,224
7,867
52,797
1,423,242
1,282,890
140,352
309,704
219,871
89,833
112,717
112,717
0
144,748
143,413
1,335
1,105,515
405,626
699,889
173,749
116,491
57,258
245,861
243,128
2,733
Earnings on
Investments
-72,456,581
-63,514,230
-8,942,351
-1,866,066
-1,898,744
32,678
-774,218
-754,629
-19,589
308,367
394,354
-85,987
-757,283
-751,459
-5,824
-15,077,160
-11,469,525
-3,607,635
-3,265,614
-3,147,699
-117,915
596,024
717,351
-121,327
61,529
71,609
-10,080
-237,706
-2,042,342
-1,287,975
-754,367
-2,449,940
-2,375,576
-74,364
-483,052
-483,052
0
-476,761
-476,066
-695
-1,937,557
-2,162,007
224,450
-605,838
-610,070
4,232
-738,500
-747,181
8,681
Appendix C Continued
Kansas
State
Local
Kentucky
State
Local
Louisiana
State
Local
Maine
State
Local
Maryland
State
Local
Massachusetts
State
Local
Michigan
State
Local
Minnesota
State
Local
Mississippi
State
Local
Missouri
State
Local
Montana
State
Local
Nebraska
State
Local
Nevada
State
Local
New Hampshire
State
Local
New Jersey
State
Local
New Mexico
State
Local
New York
State
Local
North Carolina
State
Local
425,732
446,721
-20,989
262,228
220,417
41,811
948,709
871,379
77,330
34,521
34,521
0
507,772
718,381
-210,609
714,382
-170,224
884,606
2,070,275
1,410,070
660,205
34,851
148,295
-113,444
-170,529
-172,748
2,219
370,778
382,907
-12,129
116,370
116,370
0
-152,689
-28,159
-124,530
432,809
432,809
0
-106,524
-106,978
454
-3,989,666
-3,991,358
1,692
336,601
336,601
0
2,823,189
1,565,339
1,257,850
1,273,416
1,277,700
-4,284
207,909
201,681
6,228
561,670
557,263
4,407
550,178
526,052
24,126
130,363
130,363
0
276,935
208,433
68,502
1,260,284
930,460
329,824
724,481
621,559
102,922
538,684
494,602
44,082
319,210
319,161
49
468,764
414,039
54,725
117,100
117,100
0
139,672
109,755
29,917
53,958
53,958
0
103,842
103,211
631
886,305
884,411
1,894
249,665
249,665
0
1,519,301
366,030
1,153,271
847,471
841,218
6,253
229,609
221,473
8,136
436,858
424,398
12,460
919,886
852,665
67,221
423,858
423,858
0
753,619
629,058
124,561
1,454,267
810,766
643,501
1,036,728
835,831
200,897
665,906
573,011
92,895
436,882
434,212
2,670
911,750
809,070
102,680
135,075
135,075
0
169,110
136,381
32,729
680,428
680,428
0
84,147
83,516
631
308,542
306,488
2,054
381,891
381,891
0
1,941,653
406,445
1,535,208
440,675
434,827
5,848
161,911
161,891
20
408,838
408,830
8
748,556
748,367
189
423,858
423,858
0
588,975
588,975
0
839,209
741,462
97,747
301,031
301,031
0
177,560
143,749
33,811
171,374
171,374
0
341,553
339,021
2,532
46,507
46,507
0
51,271
48,030
3,241
163,685
163,685
0
37,068
37,068
0
20,094
20,094
0
178,198
178,198
0
92,819
92,819
0
242,267
242,204
63
67,698
59,582
8,116
28,020
15,568
12,452
171,330
104,298
67,032
0
0
0
164,644
40,083
124,561
615,058
69,304
545,754
735,697
534,800
200,897
488,346
429,262
59,084
265,508
262,838
2,670
570,197
470,049
100,148
88,568
88,568
0
117,839
88,351
29,488
516,743
516,743
0
47,079
46,448
631
288,448
286,394
2,054
203,693
203,693
0
1,848,834
313,626
1,535,208
198,408
192,623
5,785
-11,786
23,567
-35,353
-736,300
-761,244
24,944
-521,355
-507,338
-14,017
-519,700
-519,700
0
-522,782
-119,110
-403,672
-2,000,169
-1,911,450
-88,719
309,066
-47,320
356,386
-1,169,739
-919,318
-250,421
-926,621
-926,121
-500
-1,009,736
-840,202
-169,534
-135,805
-135,805
0
-461,471
-274,295
-187,176
-301,577
-301,577
0
-294,513
-293,705
-808
-5,184,513
-5,182,257
-2,256
-294,955
-294,955
0
-637,765
792,864
-1,430,629
-14,730
1,655
-16,385
Appendix C Continued
North Dakota
State
Local
Ohio
State
Local
Oklahoma
State
Local
Oregon
State
Local
Pennsylvania
State
Local
Rhode Island
State
Local
South Carolina
State
Local
South Dakota
State
Local
Tennessee
State
Local
Texas
State
Local
Utah
State
Local
Vermont
State
Local
Virginia
State
Local
Washington
State
Local
West Virginia
State
Local
Wisconsin
State
Local
Wyoming
State
Local
209
-10,571
10,780
2,591,422
2,679,228
-87,806
247,925
231,274
16,651
-695,041
-756,095
61,054
-3,147,915
-3,300,169
152,254
-119,111
-218,060
98,949
1,283,558
1,283,329
229
-108,220
-112,607
4,387
234,169
143,599
90,570
-1,952,484
-1,568,729
-383,755
-252,308
-252,308
0
-24,951
-18,467
-6,484
-1,701,464
-1,604,231
-97,233
-2,046,087
-2,040,547
-5,540
453,246
427,826
25,420
-2,429,082
-2,371,382
-57,700
-93,634
-96,469
2,835
37,099
33,872
3,227
2,156,400
2,142,850
13,550
329,088
311,718
17,370
425,864
425,847
17
1,109,361
916,097
193,264
157,238
141,715
15,523
472,691
472,490
201
68,226
66,312
1,914
224,058
189,265
34,793
2,372,759
2,174,085
198,674
31,105
31,105
0
34,810
34,213
597
185,191
117,814
67,377
267,363
221,354
46,009
131,995
128,295
3,700
23,123
22,857
266
56,644
55,826
818
60,683
57,532
3,151
2,889,532
2,876,471
13,061
657,533
638,561
18,972
1,090,818
1,030,658
60,160
414,021
98,508
315,513
171,881
120,059
51,822
607,513
606,272
1,241
62,969
58,545
4,424
460,080
346,873
113,207
2,642,686
2,288,968
353,718
397,951
397,951
0
52,194
49,175
3,019
1,068,541
926,644
141,897
387,349
331,246
56,103
431,583
413,878
17,705
976,367
945,669
30,698
61,529
60,146
1,383
13,696
13,618
78
985,786
985,786
0
481,961
481,961
0
257,726
257,726
0
127,483
76,723
50,760
71,499
71,483
16
238,566
238,446
120
21,787
21,778
9
263,866
243,499
20,367
1,534,215
1,534,215
0
343,677
343,677
0
49,175
49,175
0
280,114
278,916
1,198
100,063
95,795
4,268
91,812
85,589
6,223
256,078
256,078
0
12,922
12,589
333
46,987
43,914
3,073
1,903,746
1,890,685
13,061
175,572
156,600
18,972
833,092
772,932
60,160
286,538
21,785
264,753
100,382
48,576
51,806
368,947
367,826
1,121
41,182
36,767
4,415
196,214
103,374
92,840
1,108,471
754,753
353,718
54,274
54,274
0
3,019
0
3,019
788,427
647,728
140,699
287,286
235,451
51,835
339,771
328,289
11,482
720,289
689,591
30,698
48,607
47,557
1,050
-97,573
-101,975
4,402
-2,454,510
-2,340,093
-114,417
-738,696
-719,005
-19,691
-2,211,723
-2,212,600
877
-4,671,297
-4,314,774
-356,523
-448,230
-479,834
31,604
203,354
204,567
-1,213
-239,415
-237,464
-1,951
-449,969
-392,539
-57,430
-6,967,929
-6,031,782
-936,147
-681,364
-681,364
0
-111,955
-101,855
-10,100
-2,955,196
-2,648,689
-306,507
-2,700,799
-2,593,147
-107,652
-110,332
-114,347
4,015
-3,428,572
-3,339,908
-88,664
-211,807
-212,441
634

Appendix D: State and Local Government Retirement

System Expenditures in 2002 (Thousands of Dollars)
State and Level
of Government
United States
State
Local
Alabama
State
Local
Alaska
State
Local
Arizona
State
Local
Arkansas
State
Local
California
State
Local
Colorado
State
Local
Connecticut
State
Local
Delaware
State
Local
D.C.
Florida
State
Local
Georgia
State
Local
Hawaii
State
Local
Idaho
State
Local
Illinois
State
Local
Indiana
State
Local
Iowa
State
Local
Kansas
State
Local
Total Payments
121,980,231
98,225,642
23,754,589
1,506,603
1,376,122
130,481
564,947
544,549
20,398
1,436,481
1,340,651
95,830
678,906
655,462
23,444
19,707,143
14,300,880
5,406,263
2,077,658
1,797,759
279,899
1,800,360
1,482,742
317,618
278,904
247,238
31,666
30,081
3,882,518
3,242,567
639,951
2,292,563
2,046,074
246,489
624,844
624,844
0
328,253
326,644
1,609
6,532,865
4,119,590
2,413,275
1,142,642
1,039,370
103,272
905,686
891,007
14,679
749,309
712,209
37,100
Benefits
110,128,411
88,713,825
21,414,586
1,355,268
1,268,697
86,571
525,509
507,743
17,766
1,285,414
1,201,116
84,298
587,385
566,181
21,204
16,528,221
11,715,497
4,812,724
1,702,584
1,457,740
244,844
1,757,059
1,467,308
289,751
253,996
224,972
29,024
13,120
3,605,427
3,052,876
552,551
2,149,640
1,928,086
221,554
530,381
530,381
0
294,507
292,983
1,524
5,958,615
3,754,258
2,204,357
1,051,629
950,817
100,812
800,166
786,299
13,867
668,283
636,366
31,917
Withdrawals
4,079,492
3,257,640
821,852
73,565
68,976
4,589
11,699
11,699
0
67,491
63,101
4,390
4,747
4,341
406
595,254
481,992
113,262
131,478
118,917
12,561
17,423
13,985
3,438
2,791
2,635
156
202
26,435
3,890
22,545
54,703
47,256
7,447
38,422
38,422
0
0
0
0
197,804
117,872
79,932
40,987
39,000
1,987
38,837
38,573
264
40,349
39,067
1,282
Other Payments
7,772,328
6,254,177
1,518,151
77,770
38,449
39,321
27,739
25,107
2,632
83,576
76,434
7,142
86,774
84,940
1,834
2,583,668
2,103,391
480,277
243,596
221,102
22,494
25,878
1,449
24,429
22,117
19,631
2,486
16,759
250,656
185,801
64,855
88,220
70,732
17,488
56,041
56,041
0
33,746
33,661
85
376,446
247,460
128,986
50,026
49,553
473
66,683
66,135
548
40,677
36,776
3,901
Appendix D Continued
Kentucky
State
Local
Louisiana
State
Local
Maine
State
Local
Maryland
State
Local
Massachusetts
State
Local
Michigan
State
Local
Minnesota
State
Local
Mississippi
State
Local
Missouri
State
Local
Montana
State
Local
Nebraska
State
Local
Nevada
State
Local
New Hampshire
State
Local
New Jersey
State
Local
New Mexico
State
Local
New York
State
Local
North Carolina
State
Local
North Dakota
State
Local
1,580,726
1,550,241
30,485
2,171,212
2,016,541
154,671
430,899
430,899
0
2,063,484
1,489,034
574,450
3,139,905
1,993,356
1,146,549
4,229,763
3,020,851
1,208,912
2,654,774
2,277,470
377,304
1,000,098
998,089
2,009
1,953,769
1,587,508
366,261
305,278
305,278
0
342,215
226,089
116,126
601,224
601,224
0
296,743
295,472
1,271
4,114,425
4,104,424
10,001
757,170
757,170
0
14,624,044
8,168,490
6,455,554
2,342,334
2,322,547
19,787
136,007
128,194
7,813
1,419,658
1,391,267
28,391
1,912,818
1,770,867
141,951
396,399
396,399
0
1,910,021
1,385,582
524,439
2,742,561
1,714,928
1,027,633
3,788,630
2,814,223
974,407
2,540,089
2,189,430
350,659
866,521
864,599
1,922
1,775,899
1,469,484
306,415
275,790
275,790
0
296,190
191,670
104,520
533,392
533,392
0
249,492
248,421
1,071
3,981,046
3,972,237
8,809
690,879
690,879
0
13,862,445
7,762,888
6,099,557
2,201,260
2,182,731
18,529
116,759
110,282
6,477
27,428
27,071
357
104,151
99,380
4,771
15,822
15,822
0
42,858
28,944
13,914
233,435
181,736
51,699
183,668
40,090
143,578
46,693
38,787
7,906
62,227
62,193
34
71,970
41,375
30,595
18,436
18,436
0
15,730
11,626
4,104
15,835
15,835
0
15,356
15,278
78
99,327
98,533
794
54,135
54,135
0
277,262
63,134
214,128
128,916
128,363
553
6,731
5,995
736
133,640
131,903
1,737
154,243
146,294
7,949
18,678
18,678
0
110,605
74,508
36,097
163,909
96,692
67,217
257,465
166,538
90,927
67,992
49,253
18,739
71,350
71,297
53
105,900
76,649
29,251
11,052
11,052
0
30,295
22,793
7,502
51,997
51,997
0
31,895
31,773
122
34,052
33,654
398
12,156
12,156
0
484,337
342,468
141,869
12,158
11,453
705
12,517
11,917
600
Appendix D Continued
Ohio
State
Local
Oklahoma
State
Local
Oregon
State
Local
Pennsylvania
State
Local
Rhode Island
State
Local
South Carolina
State
Local
South Dakota
State
Local
Tennessee
State
Local
Texas
State
Local
Utah
State
Local
Vermont
State
Local
Virginia
State
Local
Washington
State
Local
West Virginia
State
Local
Wisconsin
State
Local
Wyoming
State
Local
6,860,639
6,743,461
117,178
1,180,547
1,143,733
36,814
2,035,309
1,967,098
68,211
5,605,042
4,624,812
980,230
572,465
462,183
110,282
1,400,946
1,397,706
3,240
211,763
202,199
9,564
1,255,948
862,597
393,351
7,085,742
6,340,662
745,080
469,072
469,072
0
128,685
123,472
5,213
2,063,711
1,631,094
432,617
1,974,828
1,838,752
136,076
508,633
481,521
27,112
3,161,456
2,738,464
422,992
181,612
178,231
3,381
6,249,846
6,142,750
107,096
1,035,523
1,006,613
28,910
1,754,195
1,688,073
66,122
5,058,181
4,179,151
879,030
536,756
434,582
102,174
1,296,507
1,293,423
3,084
175,171
166,266
8,905
1,155,601
818,091
337,510
6,522,740
5,885,518
637,222
444,621
444,621
0
94,477
90,135
4,342
1,831,758
1,437,791
393,967
1,761,040
1,651,959
109,081
476,170
450,681
25,489
2,947,724
2,559,806
387,918
161,048
157,976
3,072

377,748
376,442
1,306
73,292
68,204
5,088
46,107
46,087
20
64,412
28,235
36,177
9,393
5,674
3,719
75,389
75,303
86
22,400
22,130
270
29,480
24,305
5,175
387,057
365,021
22,036
7,438
7,438
0
2,514
2,432
82
81,937
73,451
8,486
79,964
68,202
11,762
16,716
16,188
528
32,743
31,461
1,282
10,735
10,608
127
233,045
224,269
8,776
71,732
68,916
2,816
235,007
232,938
2,069
482,449
417,426
65,023
26,316
21,927
4,389
29,050
28,980
70
14,192
13,803
389
70,867
20,201
50,666
175,945
90,123
85,822
17,013
17,013
0
31,694
30,905
789
150,016
119,852
30,164
133,824
118,591
15,233
15,747
14,652
1,095
180,989
147,197
33,792
9,829
9,647
182
Appendix E: Market Value of Assets

State
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
CA
FL
TX
NY
WI
NC
OH
PA
OR
VA
CO
SC
MD
NJ
PA
IL
NJ
TN
AZ
MO
TX
IL
MA
AL
IA
NJ
MA
UT
NV
MN
IL
KY
GA
LA
TX
TX
MN
CT
KS
NM
FL
OH
WA
WA
AL
WA
IN
ID
LA
OK
MO
AZ
Plan Name
California Public Employees Retirement System, See Note K
North Carolina Retirement Systems, See Note I
South Carolina Retirement Systems, See Note H
State Retirement and Pension System
Teachers Pension and Annuity Fund
Teachers Retirement System of IL, See Note G
Consolidated Retirement System - State, Teachers & Higher Education Employees
Arizona State Retirement System
Public School Retirement System
Employees Retirement System of Texas
Illinois Municipal Retirement Fund
Teachers Retirement Systems of Alabama
Iowa Public Employees Retirement System
Police and Firemans Retirement System
Massachusetts State Retirement System
State Retirement Systems
Teachers Retirement Association
State Universities Retirement System
Kentucky Retirement Systems
County and District Retirement System
Municipal Police Officers and Firefighters Retirement Trust Funds Office
Police and Fire Pension Fund, See Note F
Public Employees Retirement System Plans 2 & 3, See Note B
Public Employees Retirement System - Plan 1, See Note B
Employees Retirement System of Alabama
Teachers Retirement System - Plan 1, See Note B
Indiana State Teachers Retirement Fund
Public Safety Personnel Retirement System

Value
Date
$161,378,337,000
$100,200,000,000
$79,122,010,645
$72,400,000,000
$62,829,000,000
$61,500,000,000
$47,660,280,000
$42,500,000,000
$41,918,000,000
$32,727,000,000
$30,200,000,000
$26,784,907,000
$26,727,822,000
$26,700,000,000
$24,560,000,000
$23,124,823,000
$20,900,000,000
$20,443,000,000
$20,100,000,000
$20,047,981,537
$17,467,381,128
$16,355,211,891
$15,906,669,000
$15,700,000,000
$15,375,270,292
$15,200,000,000
$14,834,328,000
$14,300,000,000
$14,000,000,000
$13,601,606,000
$12,732,603,559
$12,260,000,000
$11,697,607,000
$11,643,548,307
$10,800,000,000
$10,563,849,971
$10,240,029,000
$10,125,903,606
$9,800,000,000
$9,421,171,630
$9,100,000,000
$8,922,624,368
$8,246,000,000
$8,236,000,000
$7,200,000,000
$6,962,000,000
$6,800,000,000
$6,498,685,238
$5,817,275,656
$5,614,063,958
$5,232,067,207
$5,200,000,000
Dec-03
Mar-04
Aug-03
Jun-03
Dec-03
Mar-04
Jun-03
Jun-03
Dec-03
Jun-03
Dec-03
Jun-03
Jun-03
Jun-03
Dec-03
Jun-03
Jun-03
Jun-03
Dec-03
Jun-03
Aug-03
Dec-03
Dec-03
Jun-03
Jun-03
Jun-03
Dec-03
Dec-03
Jun-03
Jun-03
Feb-04
Jun-03
Jun-03
Jun-04
Dec-03
Dec-03
Jul-03
Jun-02
Dec-03
Mar-04
Sep-02
Dec-03
Sep-02
Sep-02
Sep-03
Sep-02
Apr-04
Jul-03
Jun-03
Jun-03
Jun-03
Apr-04
Appendix E Continued
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
OK
ME
NE
WY
SD
WA
NH
MT
TN
WA
WV
MO
WA
MD
MO
FL
DC
OK
WV
ND
WA
DC
GA
LA
OH
TX
CO
WA
AR
IL
NJ
DC
NV
CO
NV
NM
GA
IA
DE
TX
WA
IA
IL
GA
MS
AK
WA
AK
WA
AK
NJ
GA

Maine State Retirement System
Nebraska Public Employees Retirement Systems
Wyoming Retirement System, See Note E
South Dakota Retirement System
Law Enforcement Officers and Firefighters Retirement System - Plan 1, See Note B
New Hampshire Retirement System
Public Employee Retirement Association, See Note D
Consolidated Retirement System - Political Subdivision Pension Plan
Teachers Retirement System - Plans 2 & 3, See Note B
Missouri Local Government Employees Retirement System
Teachers and State Employees Supplemental Retirement Plans
Public School Non-Teacher Employee Retirement System
Police Officers and Fire Fighters Retirement Board
Police Pension and Retirement System
Teachers Fund for Retirement
School Employees Retirement System - Plans 2 & 3, See Note B
District of Columbia Teachers Retirement Fund
Firefighters Retirement System of Louisiana
State Highway Patrol Retirement System
Law Enforcement & Custodial Officer Supplemental Retirement Fund
Colorado County Officials and Employees Retirement Association
Washington State Patrol Retirement System, See Note B
Arkansas Local Police and Fire Retirement System
District of Columbia 457 Deferred Compensation Plan DC Plus
457 Deferred Compensation Plan
State of Colorados 457 Match Plan Plus
Iowa Dept of Public Safety Peace Officers Retirement, Accident, and Disability System
Volunteer Firefighters and Reserve Officers Relief and Pension Principal Fund, See Note C
Public Employees Retirement System of Mississippi
Alaska State Pension Investment Board
Judicial Retirement System, See Note B
Public Employees Retirement Board
Source: The Council of State Governments Southern Office Survey
$5,113,766,000
$5,100,000,000
$5,063,499,000
$4,856,997,000
$4,784,187,048
$4,060,000,000
$3,902,000,000
$3,894,101,093
$3,335,000,000
$2,877,000,000
$2,699,941,000
$2,436,000,000
$2,136,000,000
$1,800,000,000
$1,677,769,645
$1,485,747,541
$1,352,570,674
$1,330,903,000
$1,190,882,000
$1,175,200,000
$1,157,000,000
$879,812,986
$694,709,000
$664,570,797
$643,992,714
$594,093,643
$583,000,000
$551,000,000
$530,000,000
$330,053,560
$302,800,000
$298,681,954
$260,170,765
$246,972,208
$238,000,000
$230,000,000
$220,585,000
$219,476,869
$209,343,469
$115,084,994
$103,000,000
$70,584,246
$49,676,302
$25,615,000
$16,204,000
$12,221,255
$8,000,000
$7,391,455
$5,000,000
$3,602,619
$1,545,700
$626,000
Jun-03
Jun-02
Jun-03
May-04
Jun-03
Sep-02
Jun-03
Jun-04
Jun-03
Sep-02
Jun-03
Jun-03
Sep-02
Feb-04
Jun-03
Mar-04
Sep-03
Feb-04
Jun-03
Jul-03
Sep-02
Sep-03
Jun-03
Jun-03
Feb-04
Aug-03
Mar-04
Sep-02
Jan-04
Jun-03
Jun-03
Mar-04
Dec-03
Mar-04
Apr-04
Mar-04
Jun-03
Jun-03
Apr-04
Aug-03
Dec-02
Jun-03
Jun-03
Jun-03
Mar-04
Mar-04
Sep-02
Jun-03
Sep-02
Jun-03
Jun-03
Jun-03
Appendix E Continued
Note A: The Texas Judicial Retirement System - Plan I did not provide the market value of its assets. This reduced the number
of plans with market asset information by one; from 105 plans to 104 plans.
Note B: For this Washington state plans actuarial liability, the Present Value of Fully Projected Benefits (PVFPB) is presented.
Note C: For the Volunteer Firefighters and Reserve Officers Relief and Pension Principal Fund, relief liabilities are not
included; only pension liabilities.
Note D: Data for MPERA includes the Public Employees Retirement System; Judges Retirement System (JRS); Highway
Patrol Officers Retirement System (HPORS); Sheriffs Retirement System (SRS); Game Wardens & Peace Officers
Retirement System (GWPORS); Municipal Police Officers Retirement System (MPORS); Firefighters Unified
Retirement System (FURS); and the Volunteer Firefighters Compensation Act (VFCA).
Note E: Data for the Wyoming Retirement System includes the Public Employee Retirement System; Wyoming Game & Fish
Employees Retirement System; Volunteer Firemens Pension Fund; Paid Firemens System (Plan A and Plan B);
Wyoming Law Enforcement System; and the Wyoming Judicial Retirement Plan.
Note F: The market value of this plan is unaudited.
Note G: Illinois issued $10 billion in pension obligation bonds in June 2003. TRS share of $4,330,374,000 was received after
the close of the fiscal year and not included in asset figures.
Note H: Data for the SCRS includes the South Carolina Retirement System (serving state employees, teachers, and other
government employees); Police Officers Retirement System; General Assembly Retirement System; and the Judges
and Solicitors Retirement System.
Note I: Data for the North Carolina Retirement System includes the Teachers and State Employees Retirement System; Local
Government Employees Retirement System; Consolidated Judicial Retirement System; and the Firemen and Rescue
Squad Workers Pension Fund.
Note J: This is based on the market value as of March 25, 2004.
Note K: Data for CalPERS includes the California Public Employees Retirement System; the Legislators Retirement
System; Judges Retirement System I; Judges Retirement System II; State Peace Officers and Firefighters Defined
Contribution Program; and the Volunteer Firefighters Length of Service Award System.
Appendix F: Annuitants as a Percentage of Actives

1
2
State
WA
WA
3
4
5
6
7
8
WA
NV
DE
MD
WA
TX
9
10
11
12
13
14
TX
AR
TX
NM
GA
WA
15
16
17
18
19
20
21
22
23
24
25
DC
TX
TX
DC
NV
KY
AZ
AZ
GA
MO
TN
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
NE
FL
NH
MO
UT
VA
AL
NC
CO
NJ
GA
MN
MS
LA
WY
CA
NJ
KS
ID
MO
SC
AL
TX
OR
MO
Plan Name
Law Enforcement Officers and Firefighters Retirement System
- Plan 2, See Note B
Public Employees Retirement System - Plans 2 & 3, See Note B
Law Enforcement & Custodial Officer Supplemental Retirement
Fund
Volunteer Firefighters and Reserve Officers Relief and Pension
Fund, See Note C
Consolidated Retirement System - Political Subdivision Pension
Plan
Number of
Number of Actives
Annuitants
Number
Date
Number
Date
49,791
Sep-02
622
Sep-02
Annuitants
as Percent
of Actives
1.2%
14,011
53,607
6,857
8,000
65,000
132,448
Sep-02
Sep-02
Mar-04
Apr-04
Dec-03
Sep-02
244
1,106
248
327
3,252
9,750
Sep-02
Sep-02
Mar-04
Apr-04
Dec-03
Sep-02
1.7%
2.1%
3.6%
4.1%
5.0%
7.4%
40,335
477
9,534
122,547
8,511
51,175
Aug-03
Aug-03
Dec-03
Dec-03
Mar-04
Jun-03
4,029
57
1,452
23,790
1,942
12,078
Aug-03
Aug-03
Dec-03
Dec-03
Mar-04
Jun-03
10.0%
11.9%
15.2%
19.4%
22.8%
23.6%
11,903
6,145
863,291
102,856
4,971
87,327
207,169
28,000
202,499
473
46,863
Dec-02
Sep-03
Aug-03
Dec-03
Sep-03
Jun-03
Jun-03
Apr-04
Jun-03
Jun-03
Jun-03
2,854
1,476
217,477
26,425
1,294
23,371
60,357
8,500
61,681
148
14,837
Dec-02
Sep-03
Aug-03
Dec-03
Sep-03
Jun-03
Jun-03
Apr-04
Jun-03
Jun-03
Jun-03
24.0%
24.0%
25.2%
25.7%
26.0%
26.8%
29.1%
30.4%
30.5%
31.3%
31.7%
71,320
37,427
595,164
51,000
31,280
95,461
300,157
80,834
463,701
170,991
307,474
74,947
140,100
154,872
3,360
42,302
1,014,360
148,915
148,150
62,385
58,007
231,073
131,356
142,163
213,584
74,347
Jun-03
Jun-03
Jul-03
Jun-03
Jun-03
Dec-03
Jun-03
Sep-03
Mar-04
Dec-03
Jun-03
Jun-03
Jul-03
Jun-03
Jun-03
Dec-03
Dec-03
Jun-03
Dec-03
Jul-03
Jun-03
Jun-03
Sep-03
Aug-03
Jun-03
Jun-03
23,162
12,274
197,679
17,000
10,800
33,262
106,794
28,980
167,952
63,988
115,427
28,562
53,600
59,447
1,315
16,779
402,740
59,290
59,125
24,991
23,292
92,905
54,410
58,975
91,526
32,249
Jun-03
Jun-03
Jul-03
Jun-03
Jun-03
Dec-03
Jun-03
Sep-03
Mar-04
Dec-03
Jun-03
Jun-03
Jul-03
Jun-03
Jun-03
Dec-03
Dec-03
Jun-03
Dec-03
Jul-03
Jun-03
Jun-03
Sep-03
Aug-03
Jun-03
Jun-03
32.5%
32.8%
33.2%
33.3%
34.5%
34.8%
35.6%
35.9%
36.2%
37.4%
37.5%
38.1%
38.3%
38.4%
39.1%
39.7%
39.7%
39.8%
39.9%
40.1%
40.2%
40.2%
41.4%
41.5%
42.9%
43.4%
Appendix F Continued
51
52
53
54
55
56
57
58
59
60
61
MA
CT
NM
NY
OK
WI
IL
IA
ME
SD
TN
62
63
64
65
MD
IN
IL
FL
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
IL
MN
OK
ND
WV
CO
AK
LA
MT
LA
PA
OK
NJ
OH
MA
WA
IA
NJ
IA
85
86
87
88
89
90
91
92
93
94
95
96
97
OH
AK
OH
PA
NJ
IL
GA
WV
IL
WA
WA
WA
WA
98
99
WA
TX

Consolidated Retirement System - State, Teachers & Higher
Education Employees
Teachers Retirement System of Illinois, See Note G
Municipal Police Officers and Firefighters Retirement Trust
Funds Office
State of Colorado 457 Match Plan Plus
Iowa Dept of Public Safety Peace Officers Retirement, Accident,
and Disability System
Law Enforcement Officers and Firefighters Retirement System
- Plan 1, See Note B
87,934
48,902
43,598
242,834
83,127
264,945
167,952
159,353
47,000
35,114
Dec-03
Jun-02
Jun-03
Jun-02
Jun-03
Dec-03
Dec-03
Jun-03
Jun-02
Jun-03
39,341
21,905
19,630
110,858
38,059
121,582
77,115
74,336
22,000
16,441
Dec-03
Jun-02
Jun-03
Jun-02
Jun-03
Dec-03
Dec-03
Jun-03
Jun-02
Jun-03
44.7%
44.8%
45.0%
45.7%
45.8%
45.9%
45.9%
46.6%
46.8%
46.8%
127,597
190,021
76,000
152,117
Jun-03
Jun-03
Apr-04
Jun-03
59,959
90,803
36,500
73,431
Jun-03
Jun-03
Apr-04
Jun-03
47.0%
47.8%
48.0%
48.3%
27,118
71,456
71,000
43,350
9,916
35,503
15,341
34,065
65,441
32,251
89,912
247,000
3,880
44,848
179,944
80,122
1,035
194
2,792
Sep-02
Jun-03
Jun-03
Jun-03
Jul-03
Jun-03
Mar-04
Jun-03
Jun-03
Jun-04
Jun-04
Jun-03
Jul-03
Jun-02
Jun-03
Dec-03
Sep-02
Jun-03
Jun-03
13,458
35,526
36,200
22,147
5,177
18,988
8,231
18,431
35,525
17,579
52,774
145,000
2,290
26,642
108,294
51,418
718
139
2,080
Sep-02
Jun-03
Jun-03
Jun-03
Jul-03
Jun-03
Mar-04
Jun-03
Jun-03
Jun-04
Jun-04
Jun-03
Jul-03
Jun-03
Jun-03
Dec-03
Sep-02
Jun-03
Jun-03
49.6%
49.7%
51.0%
51.1%
52.2%
53.5%
53.7%
54.1%
54.3%
54.5%
58.7%
58.7%
59.0%
59.4%
60.2%
64.2%
69.4%
71.6%
74.5%
600
1,550
9,873
28,480
109,018
436
920
216
20,919
182
21,737
12,456
24
Jun-03
Feb-04
Jun-03
Jan-03
Dec-03
Jun-03
Jun-03
Jun-03
Jun-03
Jun-03
Sep-02
Sep-02
Sep-02
460
1,220
8,312
24,081
94,412
399
864
206
25,441
383
54,006
33,148
131
Jun-03
Feb-04
Jun-03
Jan-03
Dec-03
Jun-03
Jun-03
Jun-03
Jun-03
Jun-03
Sep-02
Sep-02
Sep-02
76.7%
78.7%
84.2%
84.6%
86.6%
91.5%
93.9%
95.4%
121.6%
210.4%
248.5%
266.1%
545.8%
1,147
1
26
Sep-02
Sep-02
Aug-03
7,987
18
505
Sep-02
Sep-02
Aug-03
696.3%
1,800.0%
1,942.3%
Source: The Council of State Governments Southern Office Survey. It should also be indicated that Notes B through
K presented for Appendix E apply for Appendix F above as well.
Appendix F Continued
Note:
In their responses, six plans did not provide either the number of annuitants or the number of actives in
their systems. Hence, it was impossible to calculate the percentage of annuitants as a percentage of actives
for these six plans. This lowered the number of plans for which information is presented in Table 26 from
105 plans to 99 plans. The information provided by these six plans is presented below.
Six Plans that Did Not Provide Either the Number of Actives or Annuitants
Number of Actives
Number
Date
10
Mar-04
Number of Annuitants
Number
Date
Not provided
State
1
AK
Plan Name
CO
17,200
Mar-04
Not Provided
DC
Colorado County Officials and Employees Retirement

Association
District of Columbia 457 Deferred Compensation Plan (DCPlus)
7,105
Mar-04
Not Available
FL
67,622
Mar-04
Not Available
GA
17
Jun-03
NV
Dec-03
Not provided
Dec-03
Not Applicable
8,280
Appendix G: Actuarial Funding Ratio

Actuarial Assets
State
Plan Name
WA
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
WV
IL
IL
IL
Teachers Retirement System of Illinois, See Note E
IL
OK
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
Value
Actuarial
Funding
Ratio
Date
Value
Date
$8,000,000
Sep-02
$95,000,000
Sep-02
8.4%
$1,190,882,000
Jun-03
$6,243,834,000
Jun-03
19.1%
$49,676,302
Jun-03
$196,510,067
Jun-03
25.3%
$330,053,560
Jun-03
$1,076,231,965
Jun-03
30.7%
$23,124,823,000
Jun-03
$46,933,432,000
Jun-03
49.3%
$9,714,500
Jun-03
$18,025,000
Jun-03
53.9%
$6,436,852,137
Jun-03
$11,925,161,689
Jun-03
54.0%
AK
$3,752,285
Jun-03
$5,835,609
Jun-03
64.3%
WA
$2,646,000,000
Sep-02
$4,042,000,000
Sep-02
65.5%
LA
$6,487,538,000
Jun-03
$9,796,306,000
Jun-03
66.2%
LA
$11,828,900,000
Jun-03
$17,173,300,000
Jun-03
68.9%
ME
$5,900,000,000
Jun-02
$8,500,000,000
Jun-02
69.4%
MA
$17,074,650,000
Dec-03
$24,519,059,000
Dec-03
69.6%
IA
$15,403,200,907
Jun-03
$22,108,936,178
Jun-03
69.7%
LA
$658,376,086
Jun-03
$944,688,430
Jun-03
69.7%
AK
$7,687,281
Jun-03
$10,561,563
Jun-03
72.8%
WV
$2,699,941,000
Jun-03
$3,691,001,000
Jun-03
73.1%
IN
$6,100,000,000
Jun-03
$8,200,000,000
Jun-03
74.4%
IA
$70,017,875
Jun-03
$93,561,000
Jun-03
74.8%
NH
$3,500,000,000
Jun-03
$4,669,000,000
Jun-03
75.0%
KS
$10,853,000,000
Dec-03
$14,440,000,000
Dec-03
75.2%
OH
$51,696,919,000
Jun-03
$68,734,061,000
Jun-03
75.2%
CO
$30,600,000,000
Dec-03
$40,500,000,000
Dec-03
75.6%
OK
$5,354,795,771
Jul-03
$6,974,583,356
Jul-03
76.8%
CT
$11,961,346,260
Jun-02
$15,253,882,989
Jun-02
78.4%
MS
$16,980,000
Jun-03
$21,486,000
Jun-03
79.0%
OH
$527,604,456
Dec-02
$663,069,805
Dec-02
79.6%
IA
Iowa Dept of Public Safety Peace Officers Retirement, Accident, and Disability
System
$246,443,600
Jun-03
$306,098,170
Jun-03
80.5%
MO
$20,048,000,000
Jun-03
$24,719,400,000
Jun-03
81.1%
MN
$11,195,902,000
Jul-03
$13,776,198,000
Jul-03
81.3%
NV
$15,900,000,000
Jun-03
$19,500,000,000
Jun-03
81.5%
WA
Public Employees Retirement System - Plans 2 & 3, See Note B
$10,701,000,000
Sep-02
$13,093,000,000
Sep-02
81.7%
MO
$1,677,800,000
Jun-03
$2,049,700,000
Jun-03
81.9%
KY
$15,500,000,000
Jun-03
$18,890,000,000
Jun-03
82.1%
TX
$10,815,090,275
Dec-03
$13,100,126,794
Dec-03
82.6%
OH
$8,682,703,560
Jan-03
$10,508,366,996
Jan-03
82.6%
SC
$22,860,101,000
Jun-03
$27,377,055,000
Jun-03
83.5%
MA
$15,930,753,000
Dec-03
$18,996,053,000
Dec-03
83.9%
WA
$1,519,000,000
Sep-02
$1,804,000,000
Sep-02
84.2%
OK
$1,392,043,000
Jul-03
$1,646,979,675
Jul-03
84.5%
ND
$1,438,400,000
Jul-03
$1,690,300,000
Jul-03
85.1%
WA
$10,757,000,000
Sep-02
$12,532,000,000
Sep-02
85.8%
WA
$3,800,000,000
Sep-02
$4,422,000,000
Sep-02
85.9%
NJ
$372,800,000
Jun-03
$431,500,000
Jun-03
86.4%
OR
$35,537,100,000
Dec-02
$39,520,500,000
Dec-02
89.9%
TX
$9,788,900,000
Dec-03
$10,813,500,000
Dec-03
90.5%
AR
$553,000,000
Dec-03
$610,000,000
Dec-03
90.7%
MO
$6,057,329,072
Jun-03
$6,662,291,406
Jun-03
90.9%
NE
$5,259,423,944
Jun-03
$5,760,891,499
Jun-03
91.3%
WY
$4,657,898,000
Jan-04
$5,077,443,000
Jan-04
91.7%
WA
$9,366,000,000
Sep-02
$10,209,000,000
Sep-02
91.7%
NJ
$34,600,000,000
Jun-03
$37,300,000,000
Jun-03
92.8%
UT
$14,700,000,000
Dec-03
$15,800,000,000
Dec-03
93.0%
AL
$18,100,000,000
Jun-03
$19,400,000,000
Jun-03
93.3%
MD
$32,631,465,000
Jun-03
$34,974,601,000
Jun-03
93.3%
TX
Aug-03
$94,263,027,542
Aug-03
94.5%
$89,033,023,666
Appendix G Continued
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
CA
$156,067,000,000
Jun-02
$163,961,000,000
Jun-02
95.2%
AL
$8,100,000,000
Sep-02
$8,400,000,000
Sep-02
96.4%
MT
$3,679,960,000
Jun-02
$3,815,811,000
Jun-02
96.4%
MO
$2,604,000,000
Jun-03
$2,700,000,000
Jun-03
96.4%
SD
$4,685,890,770
Jun-03
$4,818,943,695
Jun-03
97.2%
PA
$52,900,000,000
Jun-03
$54,400,000,000
Jun-03
97.2%
NM
$8,971,080,804
Jun-03
$9,215,945,484
Jun-03
97.3%
IL
$17,529,890,818
Dec-03
$17,966,103,485
Dec-03
97.6%
TX
$19,478,554,993
Aug-03
$19,959,111,546
Aug-03
97.6%
NJ
$27,400,000,000
Jun-03
$28,000,000,000
Jun-03
97.9%
WI
$62,685,300,000
Dec-03
$63,211,700,000
Dec-03
99.2%
TN
Consolidated Retirement System-State, Teachers & Higher Education Employees
$22,099,000,000
Jul-03
$22,152,000,000
Jul-03
99.8%
AZ
$24,303,639,447
Jun-03
$24,303,639,447
Jun-03
100.0%
AZ
$8,600,000,000
Jun-03
$8,600,000,000
Jun-03
100.0%
DC
$917,800,000
Sep-03
$917,800,000
Sep-03
100.0%
DC
$1,427,800,000
Sep-03
$1,427,800,000
Sep-03
100.0%
DE
$209,343,469
Apr-04
$209,343,469
Apr-04
100.0%
NY
$74,400,000,000
Jun-02
$74,400,000,000
Jun-02
100.0%
TN
Consolidated Retirement System - Political Subdivision Pension Plan
$3,606,000,000
Jul-03
$3,606,000,000
Jul-03
100.0%
WA
$5,000,000
Sep-02
$5,000,000
Sep-02
100.0%
WA
$689,000,000
Sep-02
$686,000,000
Sep-02
100.4%
GA
$12,124,414,000
Jun-02
$11,994,850,000
Jun-02
101.1%
VA
$38,957,000,000
Jun-02
$38,265,000,000
Jun-02
101.8%
NJ
$1,865,100
Jun-03
$1,815,700
Jun-03
102.7%
NJ
$18,400,000,000
Jun-02
$17,900,000,000
Jun-02
102.8%
MN
$17,384,179,000
Jun-03
$16,856,379,000
Jun-03
103.1%
PA
$27,465,000,000
Dec-03
$26,179,000,000
Dec-03
104.9%
WA
Volunteer Firefighters and Reserve Officers Relief and Pension Principal Fund, See
Note C
85
86
87
88
89
90
91
92
93
NC
TX
Law Enforcement & Custodial Officer Supplemental Retirement Fund
FL
Florida Retirement System , See Note J
GA
TX
WA
GA
GA
ID
$124,000,000
Dec-02
$118,000,000
Dec-02
105.1%
$55,183,599,877
Dec-02
$51,877,037,007
Dec-02
106.4%
$666,588,289
Aug-03
$597,914,188
Aug-03
111.5%
$101,900,000,000
Jul-03
$89,300,000,000
Jul-03
114.1%
$727,529,000
Jun-02
$630,295,000
Jun-02
115.4%
$129,425,907
Aug-03
$111,115,600
Aug-03
116.5%
$5,095,000,000
Sep-02
$4,338,000,000
Sep-02
117.5%
$26,637,000
Jun-02
$21,779,000
Jun-02
122.3%
$228,417,000
Jun-02
$175,154,000
Jun-02
130.4%
$6,498,685,238
Jul-03
$534,638,594
Jul-03
1,215.5%
Source: The Council of State Governments Southern Office Survey. It should also be indicated that Notes B through K
presented for Appendix E apply for Appendix G above as well.
Note: Twelve plans did not provide information on their actuarial assets and/or actuarial liabilities. Hence, it was impossible
to calculate an actuarial funding ratio for these 12 plans. This lowered the number of plans for which information is
presented in Appendix G above from 105 plans to 93 plans.
Twelve Plans that Did Not Provide Either Actuarial Assets and/or Actuarial Liabilities
State
1 AK
2 CO
3 CO
4 DC
5
FL
6
FL
7 MD
8 NM
9 NV
10 NV
11
TX
12 GA
Plan Name
Colorado County Officials and Employees Retirement Association
State of Colorado 457 Match Plan Plus
District of Columbia 457 Deferred Compensation Plan (DCPlus)
Municipal Police Officers and Firefighters Retirement Trust Funds Office
Actuarial Assets
Value
Date
Not Provided
Not Provided
$246,972,207
Mar-04
Not Available
Not Available
Unknown
Not Applicable
Not Provided
0
Dec-03
Not Available
Not Available
Not Applicable
Jun-02
Value
Date
Not Provided
Not Provided
Not Available
Not Available
Not Available
Unknown
Not Applicable
Not Provided
0
Dec-03
Not Available
$19,959,111,546
Aug-03
$8,322,000
Jun-02
Appendix H: Actuarial Unfunded Liability or Surplus Amount

Actuarial Assets
State
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Plan Name
FL
ID
Value
Date
Value
Date
Unfunded
Liability/Surplus
$101,900,000,000
Jul-03
$89,300,000,000
Jul-03
$12,600,000,000
$6,498,685,238
Jul-03
$534,638,594
Jul-03
$5,964,046,644
NC
$55,183,599,877
Dec-02
$51,877,037,007
Dec-02
$3,306,562,870
PA
$27,465,000,000
Dec-03
$26,179,000,000
Dec-03
$1,286,000,000
WA
Law Enforcement Officers and Firefighters Retirement

System - Plan 1, See Note B
$5,095,000,000
Sep-02
$4,338,000,000
Sep-02
$757,000,000
VA
$38,957,000,000
Jun-02
$38,265,000,000
Jun-02
$692,000,000
$17,384,179,000
Jun-03
$16,856,379,000
Jun-03
$527,800,000
NJ
$18,400,000,000
Jun-02
$17,900,000,000
Jun-02
$500,000,000
GA
$12,124,414,000
Jun-02
$11,994,850,000
Jun-02
$129,564,000
GA
$727,529,000
Jun-02
$630,295,000
Jun-02
$97,234,000
TX
Law Enforcement & Custodial Officer Supplemental

Retirement Fund
$666,588,289
Aug-03
$597,914,188
Aug-03
$68,674,101
GA
$228,417,000
Jun-02
$175,154,000
Jun-02
$53,263,000
TX
$129,425,907
Aug-03
$111,115,600
Aug-03
$18,310,307
WA
Volunteer Firefighters and Reserve Officers Relief and

Pension Principal Fund, See Note C
$124,000,000
Dec-02
$118,000,000
Dec-02
$6,000,000
GA
$26,637,000
Jun-02
$21,779,000
Jun-02
$4,858,000
WA
$689,000,000
Sep-02
$686,000,000
Sep-02
$3,000,000
$1,865,100
Jun-03
$1,815,700
Jun-03
$49,400
WA
$5,000,000
Sep-02
$5,000,000
Sep-02
TN
Consolidated Retirement System - Political Subdivision

Pension Plan
NY
DE
MN
NJ
$3,606,000,000
Jul-03
$3,606,000,000
Jul-03
$74,400,000,000
Jun-02
$74,400,000,000
Jun-02
$209,343,469
Apr-04
$209,343,469
Apr-04
DC
$917,800,000
Sep-03
$917,800,000
Sep-03
DC
$1,427,800,000
Sep-03
$1,427,800,000
Sep-03
AZ
$24,303,639,447
Jun-03
$24,303,639,447
Jun-03
AZ
$8,600,000,000
Jun-03
$8,600,000,000
Jun-03
AK
$3,752,285
Jun-03
$5,835,609
Jun-03
-$2,083,324
AK
MS
IL
IA
$7,687,281
Jun-03
$10,561,563
Jun-03
-$2,874,282
$16,980,000
Jun-03
$21,486,000
Jun-03
-$4,506,000
$9,714,500
Jun-03
$18,025,000
Jun-03
-$8,310,500
$70,017,875
Jun-03
$93,561,000
Jun-03
-$23,543,125
TN
Consolidated Retirement System-State, Teachers & Higher

Education Employees
$22,099,000,000
Jul-03
$22,152,000,000
Jul-03
-$53,000,000
32
33
34
AR
$553,000,000
Dec-03
$610,000,000
Dec-03
-$57,000,000
NJ
$372,800,000
Jun-03
$431,500,000
Jun-03
-$58,700,000
IA
Iowa Dept of Public Safety Peace Officers Retirement,

Accident, and Disability System
$246,443,600
Jun-03
$306,098,170
Jun-03
-$59,654,570
35
36
37
38
39
40
41
42
43
44
WA
$8,000,000
Sep-02
$95,000,000
Sep-02
-$87,000,000
MO
$2,604,000,000
Jun-03
$2,700,000,000
Jun-03
-$96,000,000
SD
$4,685,890,770
Jun-03
$4,818,943,695
Jun-03
-$133,052,925
OH
MT
45
46
47
48
49
50
51
IL
$527,604,456
Dec-02
$663,069,805
Dec-02
-$135,465,349
$3,679,960,000
Jun-02
$3,815,811,000
Jun-02
-$135,851,000
$49,676,302
Jun-03
$196,510,067
Jun-03
-$146,833,765
NM
$8,971,080,804
Jun-03
$9,215,945,484
Jun-03
-$244,864,680
ND
$1,438,400,000
Jul-03
$1,690,300,000
Jul-03
-$251,900,000
OK
$1,392,043,000
Jul-03
$1,646,979,675
Jul-03
-$254,936,675
WA
School Employees Retirement System - Plans 2 & 3, See

Note B
$1,519,000,000
Sep-02
$1,804,000,000
Sep-02
-$285,000,000
LA
$658,376,086
Jun-03
$944,688,430
Jun-03
-$286,312,344
AL
$8,100,000,000
Sep-02
$8,400,000,000
Sep-02
-$300,000,000
MO
$1,677,800,000
Jun-03
$2,049,700,000
Jun-03
-$371,900,000
WY
$4,657,898,000
Jan-04
$5,077,443,000
Jan-04
-$419,545,000
$17,529,890,818
Dec-03
$17,966,103,485
Dec-03
-$436,212,667
TX
$19,478,554,993
Aug-03
$19,959,111,546
Aug-03
-$480,556,553
WI
Wisconsin Retirement System, See Note L
$62,685,300,000
Dec-03
$63,211,700,000
Dec-03
-$499,200,000
IL
Appendix H Continued
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
NE
$5,259,423,944
Jun-03
$5,760,891,499
Jun-03
-$501,467,555
NJ
$27,400,000,000
Jun-03
$28,000,000,000
Jun-03
-$600,000,000
MO
$6,057,329,072
Jun-03
$6,662,291,406
Jun-03
-$604,962,334
WA
Teachers Retirement System Plans 2 & 3, See Note B
$3,800,000,000
Sep-02
$4,422,000,000
Sep-02
-$622,000,000
$330,053,560
Jun-03
$1,076,231,965
Jun-03
-$746,178,405
-$843,000,000
IL
WA
$9,366,000,000
Sep-02
$10,209,000,000
Sep-02
WV
$2,699,941,000
Jun-03
$3,691,001,000
Jun-03
-$991,060,000
TX
$9,788,900,000
Dec-03
$10,813,500,000
Dec-03
-$1,024,600,000
$14,700,000,000
Dec-03
$15,800,000,000
Dec-03
-$1,100,000,000
$3,500,000,000
Jun-03
$4,669,000,000
Jun-03
-$1,169,000,000
$18,100,000,000
Jun-03
$19,400,000,000
Jun-03
-$1,300,000,000
UT
NH
AL
WA
Law Enforcement Officers and Firefighters Retirement

System - Plan 2, See Note B
PA
$2,646,000,000
Sep-02
$4,042,000,000
Sep-02
-$1,396,000,000
$52,900,000,000
Jun-03
$54,400,000,000
Jun-03
-$1,500,000,000
$5,354,795,771
Jul-03
$6,974,583,356
Jul-03
-$1,619,787,585
$10,757,000,000
Sep-02
$12,532,000,000
Sep-02
-$1,775,000,000
OK
WA
OH
$8,682,703,560
Jan-03
$10,508,366,996
Jan-03
-$1,825,663,436
IN
$6,100,000,000
Jun-03
$8,200,000,000
Jun-03
-$2,100,000,000
TX
$10,815,090,275
Dec-03
$13,100,126,794
Dec-03
-$2,285,036,519
MD
$32,631,465,000
Jun-03
$34,974,601,000
Jun-03
-$2,343,136,000
WA
Public Employees Retirement System - Plans 2 & 3, See

Note B
$10,701,000,000
Sep-02
$13,093,000,000
Sep-02
-$2,392,000,000
MN
$11,195,902,000
Jul-03
$13,776,198,000
Jul-03
-$2,580,296,000
ME
$5,900,000,000
Jun-02
$8,500,000,000
Jun-02
-$2,600,000,000
$34,600,000,000
Jun-03
$37,300,000,000
Jun-03
-$2,700,000,000
MA
$15,930,753,000
Dec-03
$18,996,053,000
Dec-03
-$3,065,300,000
CT
$11,961,346,260
Jun-02
$15,253,882,989
Jun-02
-$3,292,536,729
LA
$6,487,538,000
Jun-03
$9,796,306,000
Jun-03
-$3,308,768,000
KY
$15,500,000,000
Jun-03
$18,890,000,000
Jun-03
-$3,390,000,000
KS
$10,853,000,000
Dec-03
$14,440,000,000
Dec-03
-$3,587,000,000
NV
$15,900,000,000
Jun-03
$19,500,000,000
Jun-03
-$3,600,000,000
OR
$35,537,100,000
Dec-02
$39,520,500,000
Dec-02
-$3,983,400,000
SC
$22,860,101,000
Jun-03
$27,377,055,000
Jun-03
-$4,516,954,000
MO
$20,048,000,000
Jun-03
$24,719,400,000
Jun-03
-$4,671,400,000
WV
$1,190,882,000
Jun-03
$6,243,834,000
Jun-03
-$5,052,952,000
NJ
TX
$89,033,023,666
Aug-03
$94,263,027,542
Aug-03
-$5,230,003,876
LA
$11,828,900,000
Jun-03
$17,173,300,000
Jun-03
-$5,344,400,000
OK
$6,436,852,137
Jun-03
$11,925,161,689
Jun-03
-$5,488,309,552
IA
$15,403,200,907
Jun-03
$22,108,936,178
Jun-03
-$6,705,735,271
MA
$17,074,650,000
Dec-03
$24,519,059,000
Dec-03
-$7,444,409,000
CA
California Public Employees Retirement System, See Note

K
$156,067,000,000
Jun-02
$163,961,000,000
Jun-02
-$7,894,000,000
CO
$30,600,000,000
Dec-03
$40,500,000,000
Dec-03
-$9,900,000,000
OH
$51,696,919,000
Jun-03
$68,734,061,000
Jun-03
-$17,037,142,000
Teachers Retirement System of Illinois, See Note G
$23,124,823,000
Jun-03
$46,933,432,000
Jun-03
-$23,808,609,000
IL
Source: The Council of State Governments Southern Office Survey. It should also be indicated that Notes B
through K presented for Appendix E apply for Appendix H above as well.
Note L: Even though the difference between the Wisconsin Retirement Systems actuarial assets
($62,685,300,000) and actuarial liabilities ($63,211,700,000) amounts to -$526,400,000, i.e., the
plans unfunded liability amount, the Wisconsin Office of Strategic Services provided the figure of $499,200,000. Hence, this is the amount that has been presented here.
Also, as indicated in Appendix G, 12 plans did not provide information on their actuarial assets and/or
actuarial liabilities. Consequently, it was impossible to calculate either the unfunded liability or surplus
for these 12 plans. This also lowered the number of plans for which information is presented in Appendix
G from 105 plans to 93 plans.
Endnotes
Introduction
In May 2000, the Southern Office of The Council

of State Governments, the Southern Legislative
Conference (SLC), released a Regional Resource
entitled Recent Developments in State Retirement
Systems in the Southern Legislative Conference
(SLC) States. This Regional Resource focused
on emerging trends in the state retirement systems
of the 16 Southern states belonging to the SLC by
comparing retirement system data for 1992, 1997
and 1998. While noting that the performance of
the U.S. economy had been most impressive in
the years leading to the publication of this review,
the Regional Resource also noted that state and local government retirement system portfolios had
flowered at an unprecedented rate, too. The report
then concluded that [Y]et, it is important that policymakers continue to monitor the performance of
these portfolios in the context of possible negative
economic times in the future. By March 2000, the
stock market had reached its peak and had begun
a downward trajectory that was to continue for the
next three years. Furthermore, the economy began
grinding to a halt and March 2001 signified the
beginning of a recession, albeit short-lived, that
continues to persist in the form of very sluggish job
and government growth.
In an effort to revisit the issue of public retirement

system trends, this October 2004 report draws
heavily on the background section of the aforementioned May 2000 Regional Resource.
2
Baby Boomers Retirement Prospects, page 3.
Ibid., page 4.
The Congress of the United States, Congressional

Budget Office (CBO), Baby Boomers Retirement
Prospects: An Overview, November 2003, page 4.
Medicare and Social Security Challenges, The New

York Times, March 2, 2004.
U.S. Department of Commerce, Bureau of Economic
Analysis, Personal Income and Its Disposition,
March 1, 2004.
Retirement Confidence Survey, TIAA-CREF,
Advance Magazine, Summer 2004.
Debt-Heavy Economy May Be Too Jittery About

Rates, The New York Times, January 31, 2004.
Consumer Debt: How Much Is Too Much, EconSouth,

Federal Reserve Bank of Atlanta, First Quarter
2004.
10
www.djindexes.com.
11
National
Association
of
State
Retirement
Administrators, Public Fund Survey: Summary of
Findings, August 2003.
12
Wilshire Associates, Inc., 2003 Wilshire Report on

State Retirement Systems: Funding Levels and
Asset Allocation, March 12, 2003 and 2004
Wilshire Report on State Retirement Systems:
Funding Levels and Asset Allocation, March 12,
2004.
13
Pension Agency Deficit Mounts, The Baltimore Sun,

January 16, 2004.
14
Pension Benefit Guaranty Corporation, 2003 Annual

Report, January 2004.
15
$500 Million Loan to Prop up KPERS, The

Lawrence [Kansas] Journal-World, February 3,
2004 and Kansas Acts to Aid Pension Fund,
Stateline, CSG-Midwest, March 2004.
16
State Pension Fund in Black, The Baltimore Sun,

July 31, 2003; Chapman Indicted in MD Pension
Fraud, The Baltimore Sun, June 27, 2003;
Questions Abound in Pensions Fiscal Skid, The
Baltimore Sun, November 15, 2001.
17
Hevesi Rejects Pataki Pension Fund Plans, The New

York Times, January 20, 2004 and Pataki Proposes
Pension Reforms, The Albany [NY] Times Union,
January 17, 2004.
18
Legal Opinion Casts New Doubts on State Budget

Plan, The San Diego Union-Tribune, July 11,
2004.
19
Budget Use of Pensions Sow Trouble in San Diego,

The New York Times, September 17, 2004.
20
There has been a spate of articles in media outlets

across the country probing the financial status
of the nations public retirement systems. This

reporting has been particularly pronounced in the
aftermath of the 2000-2002 stock market declines
when the shriveling asset base of these retirement
funds prompted all sorts of inquiries and analysis
by a range of different investigative bodies and
interested parties.
21
U.S. Department of Commerce, State and Local

Government Employee Retirement Systems,
www.census.gov/govs/www/retire.html.
Kelleher, Walter, Senior Benefits Analyst, Florida

Retirement System, Board of Trustees or
Retirement Boards of State Retirement Systems,
1997.
11
Kentucky Retirement System, www.kyret.com.
12
Chapter 2: Sources of Retirement

Income: Social Security, Private Savings
and Corporate Pension Plans
The historical development of the Social Security

system draws on Historical Development, Social
Security Administration, www.ssa.gov.
Chapter 1: History and Origins of

Information for the ensuing sections is extracted from

Mitchell, Olivia S., McCarthy, David, Wisniewski,
Stanley C. and Zorn, Paul in Developments in
State and Local Pension Plans; Steffen, Karen,
State Employee Pension Plans, both publications by the Pension Research Council, Wharton
School, University of Pennsylvania, 1999; and
Gale, William, G. and Orszag, Peter, R., Private
Pensions: Issues and Options, Brookings
Institution, April 2003.
Raymond, Jeannine Markoe, Director of Federal

Relations, National Association of State Retirement
Administrators, presentation before the National
Association of State Budget Officials (NASBO)
fall meeting, October 8, 2004.
As Pensions Fade, Some Firms Try Hybrid Plans, The

Christian Science Monitor, October 25, 2004.
Ibid.
Petersen, John, E., Retirement Rage, Governing

Magazine, July 2004.
As Pensions Fade, Some Firms Try Hybrid Plans, The

Christian Science Monitor, October 25, 2004.
Gale, William, G. and Orszag, Peter, R., Private

Pensions: Issues and Options, in Agenda for the
Nation, Brookings Institution, April 2003.
Raymond, Jeannine Markoe, NASBO presentation.
Some Cities Struggling to Keep Pension Promises,

The New York Times, May 4, 2004 and Petersen,
John, E., Retirement Rage, Governing Magazine,
July 2004. Unless specified, information on
DROPs is based on these two articles.
10
Swope, Christopher, DROP Outs, Governing

Magazine, September 2004.
Mr. Frank Bane resigned from the post of executive

director of the Social Security Board in 1938 to
accept the position of the first executive director of
the newly-founded Council of State Governments
(CSG). Mr. Bane went on to serve at the helm of
CSG for another 20 years, 1938-58.
For an extended discussion of the federal-state unemployment insurance program, see Sujit M.
CanagaRetna, Unemployment Insurance in a
Diminishing Economy: Recent Trends in the
Southern Legislative Conference States, July
2002.
Unless otherwise specified, details on the key elements

of the Social Security program are drawn from the
2004 Annual Report of the Board of Trustees of
the Federal Old-Age and Survivors Insurance and
Disability Insurance Trust Funds, Social Security
Administration, March 2004.
Facts and Figures About Social Security, Social

Security Administration, www.ssa.gov.
Ibid.
2004 Annual Report, The Boards of Trustees of

the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds,
March 2004 and Medicare to Go Broke by 2019,
Trustees Predict, The New York Times, March 23,
2004.
Ibid.

Budget Office (CBO), The Outlook for Social
Security, June 2004.
10
Ibid.
11

Prospects: An Overview, November 2003 and The
Retirement Prospects of the Baby Boomers, March
18, 2004.
12
13
14
15
16
17

Budget Office (CBO), The Retirement Prospects of
the Baby Boomers, March 18, 2004.
Jobless Stat is Worse in 21 Years, The Chicago
Tribune, March 5, 2004.
January 16, 2004.
Report, Washington, D.C., page 2.
Belt, Bradley, D, Executive Director, Pension Benefit
Guaranty Corporation, Testimony before the
United States Senate on October 7, 2004.
27
Belt, Bradley, D, Testimony before the United States

Senate on October 7, 2004.
28
Ibid.
29
Bailout Feared if Airlines Shed their Pensions, The

New York Times, August 1, 2004.
30
Fed Up with Pension Defaults, USA Today,

September 15, 2004.
31Georgia Could Have Stemmed Enron Losses, The

Atlanta Business Chronicle, February 8-14, 2002.
32
North Carolina Pressing Funds for Change, The New

York Times, November 18, 2003.
Enron Entanglements: Debacle Changes 401(k)

Landscape, The Atlanta Journal-Constitution,
February 13, 2002.
33
34
Disney Shows Power of Pension Activism, The

Washington Post, March 1, 2004.
35
Ibid.
18
Samuelson, Robert, J. The Pension Time Bomb, The

Washington Post, July 16, 2003.
36
19
Ibid. (Unless otherwise specified, information in this

section draws on this source.)
37
20
Retirees Worried Over Pension Uncertainties, The

Atlanta Journal-Constitution, February 28, 2004.
38
21
22
23
Pension Under-Funding Improves But Remains $165

Billion Short, Says S&P, Standard & Poors,
News Release, August 11, 2004 and Corporate
Pension Crisis Still Looming, The Washington
Post, August 24, 2004.
Corporate Pension Crisis Still Looming, The
Washington Post, August 24, 2004.
Report, page 6.
State Pension Officials Accuse Safeway Leaders of

Conflict, The New York Times, March 25, 2004.
CalPers Raises Pressure on Safeway, USA Today,
April 8, 2004.
Pension Agency Deficit Mounts,
39
Retirees Hit As Employees Cut Coverage, The

Chicago Tribune, February 23, 2004.
40
Pension Figures Foil 6-Figure Retirements, Too, The

New York Times, October 5, 2004.
41
Companies Consider Pension Freezes, USA Today,

January 7, 2004.
42
Pensions and Retirement, CQ Today, June 10, 2004.
43
Fed Up with Pension Defaults, USA Today,

September 15, 2004.
24
Wilshire Associates Incorporated, 2003 Corporate

Funding Survey on Pensions, May 14, 2003.
25
Asset Mix Took Toll on United Airlines Pension

Fund, The New York Times, August 13, 2004
and United Airlines Likely To Terminate Pension
Plans, The New York Times, August 19, 2004.
Chapter 3: Economic and Fiscal

Variables Influencing Public Sector
Retirement Systems

Report, page 6.
26
www.nber.org.
Hiring Up, But Many Jobless Not Looking, The

Christian Science Monitor, June 28, 2004.
The section on the federal budget draws on The

Cyclically Adjusted and Standardized-Budget
Measures,
Congressional
Budget
Office
(CBO), Washington, D.C., May 2004 and The
Global Implications of the U.S. Fiscal Deficit,
International Monetary Fund (IMF), Washington,
D.C., April 2004.
An Analysis of the Presidents Budgetary Proposals
for Fiscal Year 2005, Congressional Budget Office
(CBO), March 2004, Washington, D.C.
Surveys of Consumers: The Index of Consumer
Sentiment, University of Michigan, Ann Arbor,
MI, www.sca.isr.umich.edu/press-release.php.
24 Mutual Funds Have Made 1,000% in 10 Years,

USA Today, March 27, 2000.
Your Portfolio-Looking Beyond the Bear, Investment

Outlook, TD Private Client Group, Volume 4, Issue
3. Unless otherwise specified, information related
to the decline of the stock market is extracted from
this source.
Moore Seeks Pension Security, The [Raleigh, North

Carolina] News & Observer, February 12, 2003.
Interestingly, this article also commented on the efforts of State Treasurer Richard Moore, the guardian of the state pension fund, to change the state
constitution to prevent governors from seizing contributions to the fund to balance the state budget.
2003 Treasurers Letter to the Governor, Annual Report
of the Treasurer of the State of Connecticut, Fiscal
Year ended June 30, 2003.
The federal data on state and local government retirement systems also includes information on
the District of Columbia. In fact, the District of
Columbia had the lowest number of participants,
11,604 members, in its retirement system in 2002.
The following table provides the population in the
50 states and the District of Columbia on July 1,
2002.
Geographic
Area
United States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
DC
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
www.djindexes.com
www2.standardandpoors.com
10
www.nasdaq.com
11
www.russell.com
12
Behn, Robert D. and Keating, Elizabeth K. Facing

the Fiscal Crisis in State Governments: National
Problem, National Responsibilities, The Taubman
Center for State and Local Governments, John
F. Kennedy School of Government, Harvard
University, June 29, 2004.
Chapter 4: Analysis of Federal

Government Data on Public Sector
Retirement Systems
State and Local Government Employee Retirement

Systems (Technical Documentation), U.S.
Department of Commerce, Bureau of the Census,
www.census.gov/govs/www/retiretechdoc.html last
revised December 15, 2003.
Ibid.
Deferred Debt Undermines A Citys Standing,

Governing: The Magazine of States and Localities,
April 2004, page 52.
Population
(July 1,
2002)
287,973,924
4,478,896
641,482
5,441,125
2,706,268
35,001,986
4,501,051
3,458,587
805,945
569,157
16,691,701
8,544,005
1,240,663
1,343,124
12,586,447
6,156,913
2,935,840
2,711,769
4,089,822
4,476,192
1,294,894
5,450,525
6,421,800
10,043,221
5,024,791
2,866,733
Geographic
Area
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Population
(July 1,
2002)
5,669,544
910,372
1,727,564
2,167,455
1,274,405
8,575,252
1,852,044
19,134,293
8,305,820
633,911
11,408,699
3,489,700
3,520,355
12,328,827
1,068,326
4,103,770
760,437
5,789,796
21,736,925
2,318,789
616,408
7,287,829
6,067,060
1,804,884
5,439,692
498,830
Source: U.S. Department of Commerce, Bureau of the

Census, Annual Estimates of the Population of
the United States and States, April 1, 2000 to
July 1, 2003
Once again, the percentage for the District of Columbia

should be mentioned here (9 percent).
The definition of revenues is extracted from U.S.

Department of Commerce, Bureau of the Census,
State and Local Government Employee-Retirement
Systems: Technical Documentation, http://
www.census.gov/govs/www/retiretechdoc.html#sp
ecial.
Chapter 5: Analysis of Information in

Southern Office Survey
1
Tatkovski, Evelyn, Press Secretary, Pennsylvania

Public School Employees Retirement System, letter forwarded with information for The Council of
State Governments Southern Office survey, April
19, 2004.
This section draws on Brainard, Keith, Public Fund
Survey, Summary of Findings, National Association
of State Retirement Administrators, August 2003.
Corporate Pension Crisis Still Looming, The New
York Times, August 24, 2004.
Anderson, Tim, Poor Performance: Losses in Pension

Funds, Long-Term Trends Have States Looking At
System, State Government News, The Council of
State Governments, February 2004.
Ibid.
State Retiree Health Costs Now $10.9 Billion, The

Montgomery Advertiser, March 17, 2004.
Task Force to Rein in Health Care Costs, The

Montgomery Advertiser, April 22, 2004.
A Pension Fund Chief Bets on US Airways, The New

York Times, October 5, 2002; Alabamas Pensions
Funded in Novel Ways, The Atlanta JournalConstitution, February 27, 2003; and Airlines
Crisis Hurts Alabama, USA Today, September
15, 2004.
Airlines Crisis Hurts Alabama, USA Today,

September 15, 2004.
10
Teachers Retirement Portfolio Grows 17.7 Percent in

Year, The Arkansas Democrat-Gazette, September
14, 2002.
11
Legal Opinion Casts New Doubts on State Budget

Plan, The San Diego Union-Tribune, July 11,
2004.
12
Governors State Pension Plan Needs a Dose of

Geritol, The Sacramento Bee, February 29, 2004.
13
CalPERS Cuts 38 Hospitals, The Los Angeles Times,

May 20, 2004.
14
CalPERS Raises Pressure on Safeway, USA Today,

April 8, 2004.
15
CalPERS Posts a 16.7 Percent Return, The New York

Times, August 11, 2004.
16
Deferred Debt Undermines a Citys Standing,

Governing Magazine, April 2004.
17
Some Cities Struggle to Keep Pension Promises, The

New York Times, May 5, 2004.
18
Budget Use of Pensions Sows Trouble in San Diego,

The New York Times, September 17, 2004.
19
State Pension Fund Shrinks By $1.8 Billion,

www.ct.now, August 28, 2002.
20
The CRPTF holds assets on behalf of the State

Employees Retirement Fund; Teachers Retirement
Fund; Municipal Employees Retirement Fund;
Probate Court Retirement Fund; Judges Retirement
Fund; States Attorneys Retirement Fund, Soldiers
Sailors & Marines Fund; Endowment for the Arts;
Agricultural College Fund; Ida Eaton Cotton Fund;
Andrew Clark Fund; School Fund; Hopemead
Fund; and Police & Firemans Survivors Benefit
Fund.
21
2003 Treasurers Letter to the Governor, Annual

Report of the Treasurer of the State of Connecticut,
Fiscal Year ended June 30, 2003.
22
Leading Investors Announce Plans to Withhold Vote

on CEO, Directors of Safeway, News Release,
Office of the State Treasurer, Connecticut, March
25, 2004.
23
Disney Annual Meeting, News Release, Office of the

State Treasurer of Connecticut, February 26, 2004.
24
New Retirement Plan Too Risky, So Many Stick With

Old Choice, The Tallahassee Democrat, April 22,
2002.
25
Georgia Could Have Stemmed Enron Losses, The

Atlanta Business Chronicle, February 8-14, 2002
and Legislative Notes, The Atlanta JournalConstitution, February 25, 2002.
26
The Pensioners: Good Timing, Governing Magazine,

April 2004.
27
$500 Million Loan to Prop up KPERS, The Lawrence

[Kansas] Journal-World, February 3, 2004.
28
Senate Panel Refuses to Add to Pension Woes, The

Baton Rouge [Louisiana] Advocate, April 27, 2004;
Pension Overhaul Put Off For Now, The New
Orleans-Times Picayune, July 6, 2004; School
Districts Face Hikes in Financial Contributions
to Save Retirement Systems, The Shreveport
[Louisiana] Times, February 20, 2004.
29
Budget Crunch Surfaces at Bogalusa Schools, The

New Orleans Times-Picayune, October 14, 2004.
30
Retirement Bills Remain Stalled in Senate

Committee, The Baton Rouge [Louisiana]
Advocate, May 18, 2004; Senate Panel Passes
Package to Refinance Retirement Debt, The New
Orleans Times-Picayune, June 8, 2004; Senate
OKs Spreading Out Retirement Payment, The
Baton Rouge [Louisiana] Advocate, June 9,
2004; House Committee Approves Retirement
Refinancing Plan, The Baton Rouge [Louisiana]
Advocate, June 16, 2004; Plan to Refinance
Debts Heads to Governors Desk, The Baton
Rouge [Louisiana] Advocate, June 23, 2004; and,
Orleans Times-Picayune, July 6, 2004.
37
Senator Seeks Audit of LA Retirement Systems,

The Baton Rouge [Louisiana] Advocate, March
31, 2004.
38
Hainkel Calls Meeting to Discuss Changes in

Pension-Fund Bill, The Baton Rouge [Louisiana]
Advocate, April 17, 2002.
39
Retirement systems may get millions: Class-action

lawsuit reaches settlement, The [New Orleans]
Times-Picayune, August 03, 2004.
40
Maine Takes a Cautious Path on Its Pensions, The

New York Times, April 23, 2004.
41
Ibid.
42
States Pension System is Ranked Last Among Peers,

The Baltimore Sun, October 30, 2001
43
Pension Officials Defend Record, The Baltimore

Sun, October 31, 2001
44
Changes in Pension System Foreseen, The Baltimore

Sun, November 16, 2001
45
Pension Fund Probe Revived, The Baltimore Sun,

August 28, 2002.
31
46
32
47

Orleans Times-Picayune, July 6, 2004.
Police Retirement System Losing On Investments,
The Baton Rouge [Louisiana] Advocate, March
21, 2004; Attorney General to Probe Legality
of Retirement System Investments, The Baton
Rouge [Louisiana] Advocate, March 25, 2004;
and Police Retirement Fund Borrows $30 Million
for Golf Course, The Baton Rouge [Louisiana]
Advocate, June 25, 2004.
33
In Louisiana, a Pension Official Blows the Whistle

on Adviser Conflicts, The New York Times, March
21, 2004.
34
Rombach, John R, Legislative Fiscal Officer,

Louisianas Retirement Systems: An Expenditure
Analysis (FY96-FY03), submitted to the Louisiana
State Legislature on December 11, 2003.
35
Ibid., pages 2 and 3.
36
LA Pension Officials Urge Patience, The Baton

Rouge [Louisiana] Advocate, March 22, 2004.
State Pension Official Departs, The Baltimore Sun,

April 23, 2003.
Job Security was Promised for Testimony, Ex-Official
Says, The Baltimore Sun, July 13, 2004.
48
State Pension Fund in Black, The Baltimore Sun,

July 31, 2003.
49
Maryland Retirement and Pension Agency Reports

Improved Fiscal Year-End Results, Maryland
State Retirement and Pension System, Press
Release, July 20, 2004.
50
From Ruins of Scandal, New Pension System

Emerged, The Baltimore Sun, August 13, 2004.
51
2003 Comprehensive Annual Report, Public

Employees Retirement System of Mississippi.
52
State Retirement Fund Sees Again, The Mississippi

Clarion-Ledger, July 1, 2003.
53
Bill deadline: Proposals for Teachers, Jail Fees Die,

The Mississippi Clarion-Ledger, March 19, 2004
54
Retirement Fund May Face Hurdles, The Mississippi

Clarion-Ledger, March 30, 2004.
55
Retired Workers Told to Pay for Insurance, The

Mississippi Clarion-Ledger, September 30, 2004.
56
Pataki Proposes Pension Reform, The Albany [New

York] Times-Union, January 17, 2004.
57
Hevesi Rejects Pataki Pension Fund Plans, The New

York Times, January 20, 2004.
58
Pension Fund Does Well Despite Losses, The

[Raleigh, North Carolina] News Observer, January
4, 2002.
59
73
Leaders May Alter Retirement System, The

[Columbia, South Carolina] State, March 18,
2004.
74
Ibid.
75
2003 Annual Financial Report of the Tennessee

Consolidated Retirement System, State of
Tennessee, Treasury Department, December 15,
2003.
76
Tennessee Must Pay Extra $180 Million for Pensions,

The Tennessean, February 12, 2003.
System Feeling a Crunch, The [Raleigh, North

Carolina] News Observer, October 9, 2002.
77
State Pension Fund Shrinks, The [Raleigh, North

Carolina] News Observer, November 5, 2002.
78
61
Ibid.
79
62
Ibid.
63
Moore Seeks Pension Security, The [Raleigh, North

Carolina] News Observer, February 12, 2003.
64
N.C. Pension Fund Gets 12% Return, The [Raleigh,

North Carolina] News Observer, July 23, 2004.
65
BB&T Loses State Pension Contract, Will Cut Jobs,

The [Raleigh, North Carolina] News Observer,
April 23, 2003.
66
Performance Measure: State of Oregon, Governing

Magazine, April 2004.
81
67
2003 Comprehensive Annual Financial Report,

Pennsylvania State Employees Retirement
System, June 2004.
82
60
68
69
70
71
72
Some Cities Struggle to Keep Pension Promises, The

New York Times, May 5, 2004.
State Pension Fund Ekes Out Positive Return in Bad
Year, The [Columbia, South Carolina] State,
November 17, 2002
South Carolina Budget & Control Board, Retirement
Systems, 2003 Popular Annual Financial Report.
State Loses Nearly $2 Billion of Retirees Funds,
The Greenville [South Carolina] News, March 4,
2003.
Ibid.
Council Kills 12-Year Rule for Pensions, The

Memphis Commercial Appeal, October 7, 2004.
Ibid.
Comprehensive Annual Financial Report 2003,
Teachers Retirement System of Texas, November
10, 2003.
80
Information regarding this issue is based on information in City Faces $1Billion Pension Shortfall,
The Houston Chronicle, February 29, 2004; City
Faces Billion Dollar Shortfall in Pension Program,
Click2Houston.Com, March 1, 2004; Pension Rule
Changes Aided Top City Officials, The Houston
Chronicle, March 3, 2004; and, Houston Debating
Pension-Cut Ban, The Houston Chronicle, March
3, 2004.
Pension Rule Changes Aided Top City Officials, The
Houston Chronicle, March 3, 2004.
Ibid.
83
Proposition #1 Passes, The Houston Chronicle, May

16, 2004.
84
VRS May Require $500 Million-Plus Over Next Two

Years, The [Richmond, Virginia] Times-Dispatch,
October 9, 2003.
85
Retirement System Back on Rebound, The

[Richmond, Virginia] Times-Dispatch, July 13,
2004.
86
State Officials Plan Pension Bonds Appeal, The

Charleston [West Virginia] Gazette, March 16,
2004.
87
Pension Plan Stimulates Big Doubts for Justices,

The Charleston [West Virginia] Gazette, September
2, 2004.
88
Pension Average Changed, The Charleston [West

Virginia] Gazette, March 30, 2004.
89
Ibid.
90
Passed Bill Would Boost Teacher-Legislators

Pensions, The Charleston [West Virginia] Gazette,
March 16, 2004.
91
Merger Proposed for Teacher Retirement Plans, The

[West Virginia] Herald-Dispatch, March 3, 2004.
92
Thinking Ahead: State of Wisconsin, Governing

Magazine, April 2004.
93
Information related to Milwaukees pension woes are

drawn from Some Cities Struggle to Keep Pension
Promises, The New York Times, May 5, 2004.
Report on State Retirement Systems: Funding

Levels and Asset Allocation, March 12, 2004.
11
There has been a spate of articles in media outlets

across the country probing the financial status
of the nations public retirement system. This
reporting has been particularly pronounced in the
aftermath of the 2000-2002 stock market declines
when the shriveling asset base of these retirement
funds prompted all sorts of inquiries and analysis
by a range of different investigative bodies and
interested parties.
12
U.S. Department of Commerce, State and Local

Government Employee Retirement Systems,
www.census.gov/govs/www/retire.html.
13
Jeannine Markoe Raymond, NASBO presentation.
14
Conclusion
1

Prospects: An Overview, November 2003.
Ibid., page 4.
Medicare and Social Security Challenges, The New

York Times, March 2, 2004.
U.S. Department of Commerce, Bureau of Economic

Analysis, Personal Income and its Disposition,
March 1, 2004.

Consumer Debt: How Much Is Too Much, EconSouth,

Federal Reserve Bank of Atlanta, First Quarter
2004.

January 16, 2004.
National
Association
of
State
Retirement
Findings, August 2003.
National
Association
of
State
Retirement
Findings, September 2004.
10
Wilshire Associates, Inc., 2003 Wilshire Report on State

Retirement Systems: Funding Levels and Asset
Allocation, March 12, 2003 and 2004 Wilshire
Comparison of Household Savings Ratios: Euro

Area, Japan and United States, Organization
for Economic Co-operation and Development
(OECD), Statistics Brief, June 8, 2004, No.8.
Copyright October 2004

Southern Office
P.O. Box 98129
Atlanta, GA 30359
404/633-1866
Colleen Cousineau, Executive Director

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a special series report of the southern legialtive conference

Americas Public Retirement Systems

Americas Public Retirement Plans

Copyright October 2004

Revenues of State and Local Government Employee Retirement Systems...................................................................... 46

Americas Public Retirement Plans:

Stresses in the System, page 1

revamping Social Security, which, since its inception

plummeted from 11.2 percent of disposable income

ment plans plunging to lower levels in fiscal year

government employee retirement systems by state

1930-1950: More than half of the nations

applying to the amount over $4,200. ($4,200

1980 to the present: A major development

Government vs. Non-government Securities Split in Public Retirement

As indicated in Table 1, after the relaxing

Public and Private Sector Pension

The extension of the retirement period at the

of their retirement. In fact, defined benefit plans

1980, 60 percent of plans were traditional, DB plans.

(1995), AT&T Corporation (1998), Avon Products

Characteristics of Employer Pension Plans

Defined Contribution (DC)/

Cash Balance Plans

Employee and Employer

Financial Market Risk Borne By

Pay Credits (based

How Benefits Are Typically

Access to Funds for Current

Yes (through loans and

Source: Gale and Orszag, April 20037

Stresses in the System, page 7

work 10 years before becoming legally entitled to

Americas Public Retirement Systems, page 8

Types of Public Sector Retirement

With regard to the general employee retirement

of tapping their pension funds to create individual

will receive a $1.5 million check from the citys

Administering Retirement Systems in

Policymakers continue to play an important

The industrialization of the American economy

individuals. Eventually, in August 1935, in response

eligibility for full retirement benefits from 65 to

At the end of 2003, 47 million people were

Americas Public Retirement Systems, page 12

to 309 percent of annual expenditures at the

Under intermediate assumptions, the combined

The OASDI annual cost rate is projected

Between about 2010 and 2030, OASDI costs

In the area of demographic challenges

years. Also, compounding this trend are the

For the trust funds to remain solvent throughout

Further roiling the retirement plans of senior

expect this to occur in 2018) and the fact that CBO

Real Interest Rate

Source: Congressional Budget Office

Retirement planners are quick to point out that

In June 2004, the Congressional Budget Office

Personal Savings Rate and Disposable Income

Source: U.S. Department of Commerce, Bureau of

As indicated in Table 4, during the past 30

Even though the baby boomers, people born

Personal Savings Rate as a Percent of Disposable Income 1973-2003