Unfunded liabilities refer to a pension fund’s debts—the payments owed to members of the pension fund that exceed its assets of current capital and their projected investment returns. This difference between assets and liabilities is monitored as an indicator of pension fund performance, management, and ability to pay retiree benefits.

In the years between 2003-2018, combined state pension funds’ unfunded liabilities have grown from $233 billion to $1.237 trillion. According to the United States Census Bureau, there were 296 state-administered pension funds in fiscal year 2018. In that same year, state government pension funds held $2.98 trillion in assets and carried $4.22 trillion in liabilities, resulting in a funding gap—the funds’ combined unfunded liabilities, or pension debt—of $1.237 trillion.

The trend between 2003 and 2018 showed a steady decline in the funded ratio for state pension funds as the growth in fund liabilities outran the growth in assets. The funding ratio of states’ pension funds dropped from nearly 90 percent in 2003 to below 80 percent in the six years between 2003 and the Great Recession year of 2009. The aggregate state pension fund ratio dropped to a low point of 65.9 percent in 2016, before rebounding to the 70 percent level in 2018.