A recent article in the Mississippi Sun Herald highlights a growing crisis among state employee pension funds, particularly in Mississippi where the state's pension fund is $6 billion short.

The article quotes the Wall Street journal as saying "State and local governments are amassing huge obligations in the form of unfunded retirement benefits from their workers," calling states' unfunded retiree and health benefits "a $2 trillion fiscal hole."

The most recent annual study of state pension funding by Wilshire Associates, an investment consulting and management company, found the following:

• The ratio of pension assets-to-liabilities, or funding ratio, for all 125 state pension plans was 88% in 2006, up from an estimated 87% in 2005.

• Of the 64 state retirement systems which reported actuarial data for 2006, 80% have market value of assets less than pension liabilities, or are underfunded. The average underfunded plan has a ratio of assets-to-liabilities equal to 79%.

• Of the 108 state retirement systems which reported actuarial data for 2005, 84% are underfunded. The average underfunded plan has a ratio of assets-to-liabilities equal to 82%.

In slogging through the most recent annual reports for state retirement systems around the South, we found that North Carolina and Florida are the only two states reporting fully funded pension plans. We also found that Mississippi's retirement system is not the only one struggling. Louisiana's is in worse shape, and Kentucky's is dead last.

Here are the states, ranked by pension funding ratio:

North Carolina 107%
Florida 107%
Tennessee 97%
Georgia 92%
West Virginia 87%
Alabama 84%
Arkansas 83%
Virginia 81%
South Carolina 72%
Mississippi 72%
Louisiana 64%
Kentucky 60%

Kentucky's annual report sums up the laundry list of challenges facing retirement system pension fund managers:

In recent years, funding levels for the pension funds have fallen dramatically in response to investment returns less than the actuarially assumed rate, higher than anticipated retirement rates, the 2006 assumption changes, and increasing expenditures for retiree Cost of Living Adjustments (COLA). Within the [State Employee and State Police Retirement] plans, employer contribution rate reductions enacted by the State Legislature have limited the plans ability to correct the declining funding levels.

To make up the shortfall, states are resorting to a variety of measures, such as increasing taxes, issuing bonds, and requiring employee payroll contributions to their pension plans.

One solution being discussed is to move away from defined benefit programs to defined contribution programs such as 401(K)s. Already the generally accepted standard in the corporate world, defined contribution plans shift the financial risks and management responsibility from the state and its taxpayers to individual employees. Some states are offering defined contribution plans in addition to the state's existing defined benefit plan, others offer a choice, still others are phasing in defined contribution plans for new hires.

The AFL-CIO is also monitoring the situation, and has this state-by-state "pension threat level" map. The map shows a "red alert" for Kentucky, and "yellow alerts" for South Carolina, Alabama, Mississippi, and Louisiana.