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Stock Market Volatility May Devastate Connecticut Pensions

Richard Drew
/
AP
Trader Edward McCarthy works on the floor of the New York Stock Exchange last week.

New stress tests are showing how state budgets have never been so exposed to market gyrations. Some pension funds for state workers are so underfunded they face insolvency if the stock market drops.

Most states fund pensions for government workers with a mix of investments and tax dollars. But in recent years, policymakers have relied more and more on market returns. Greg Mennis, a researcher for Pew Charitable Trust, says some states, like Connecticut, have been doing this for a while now.

“They’ve lost so much ground in terms of promising benefits without funding them in decades past that it may be in those states that it consumes 10-15 percent of state revenue for an almost indefinite period of time.”

This means less money for roads and schools—or higher taxes. States most exposed to the stock market are New Jersey, Kentucky, and Colorado. For those states, a recession could bankrupt the pension funds.

Charles is senior reporter focusing on special projects. He has won numerous awards including an IRE award, three SPJ Public Service Awards, and a National Murrow. He was also a finalist for the Livingston Award for Young Journalists and Third Coast Director’s Choice Award.