Just as failing to meet a monthly payment on a personal loan can result in higher payments down the road, a state’s failure to pay the annual bill for retirement benefits can mean it will have to pay more in the future. A comparison of New York and New Jersey provides a good example. Both states had fully funded pension plans in 2002. In subsequent years, the Garden State failed to make more than 60 percent of its annual contribution in each year and its funding gap grew to $46 billion.
The Empire State, on the other hand, continued to be disciplined about funding its annual bill. Today, New York has a $147 billion liability, compared to New Jersey’s $135 billion obligation, but its annual required contribution is $1.6 billion less. To put this in context, consider that New York increased K-12 education spending by $1.7 billion from fiscal year 2008 to 2009. New Jersey, meanwhile, reduced state education spending by $557 million during the same period.