If pension investment return assumptions are met over the near-term, funded ratios may begin to stabilize or improve in fiscal 2006 and beyond. The risks to such a scenario, in addition to the potential for investment return shortfalls, include a number of factors that affect funding, such as changes in actuarial assumptions, benefit levels and demographics.

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It is not surprising that because of the combined effect of the double-whammy, falling assets/rising liabilities, average state pension funding levels, as of June 30, 2004, had fallen to approximately 84 percent of their previous apex four years earlier.

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The problem now is that contribution rates are going up and that's what's putting these (government) budgets in a bind around the country. Most of these governments are very labor intensive and that's a big hit.

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