States including Indiana are not putting away enough money to fund future retirement benefits for public employees and teachers, according to a new report from the Pew Center on the States.
The report released Tuesday by a division of the Pew Charitable Trusts found there is a large gap at least $1.38 trillion in 2010 between the amount all states will owe for pensions and retiree health care and the amount they have saved.
In Indiana, the gap in 2010 was $14 billion, according to the report. Much of it "was the result of the poorly funded State Teachers' Retirement Fund," Pew said.
But Adam Horst, director of the Indiana Office of Management and Budget, said in a statement that the Pew report is "fatally flawed in its method."
"More accurate studies, such as Moody's, show that Indiana has one of the strongest pension funds and lowest debt and retiree health care burdens of any state," Horst said. "Any state would be happy to switch places with Indiana when it comes to the funding of long-term obligations."
According to Pew, Wisconsin is the only state that fully funded its pension plans for public employees in 2010. The report said experts agree that a "fiscally sustainable" retirement system should be 80 percent funded and 34 states were below that amount. Indiana was at 65 percent.
Indiana is facing a liability of $39 billion to support future retirees' pensions and a $400 million liability for retiree health care, the report said. But the state has fallen behind in saving this amount by $14 billion.
In 2010, the state put $1.4 billion into its pension funds, which was $100 million less than the Pew study said it should have. The state set aside $13 million for retiree health care, much less than the $54 million Pew said it should have.
Pew graded the states' performance and said Indiana's health care savings "needs improvement" while the group said it had "serious concerns" about the state's pension obligations.
Kil Huh, the director of research at Pew Centers on the States, said Indiana has done an effective job in the past setting aside money to cover the bill for retirement systems. But Huh said last year, Indiana fell short of fully funding the retirement systems for their public employees.
Huh said the lack of funds was most likely caused by the state's budget challenges. Huh said in the past Indiana overpaid into its pension system when possible.
Huh said Indiana needs to keep track of benefits as one of the ways to solve the underfunding. If the state increases benefits to attract employees, the state needs to make sure it can afford the extra benefits.
"There's no silver bullet solution," Huh said.
Horst, the state's budget director, isn't the only person who disagreed with Pew's findings. Bob Williams, president of State Budget Solutions, said the report actually underestimated the debt in each state.
"Even though the Pew report acknowledges a 38 percent liability increase in just two years using official numbers, the actual debt is much bigger and growing faster than official numbers show," Williams said in a press release. "Many experts, including State Budget Solutions, have found that total unfunded pension debt for taxpayers is greater than $4 trillion."