This is the Cato Daily Podcast for Friday, March 6th, 2009.

I'm Caleb Brown. State pension funds are feeling the pinch in this recession and the coincidence of retiring baby boomers and pension underfunding

prior to the recession may make matters much worse for states, not to mention the taxpayers

who are supporting state workers with those gold-plated benefits.

Cato Institute Senior Fellow Jagadiche Gokale says there are four states whose pension funds are

teetering on the brink already.

On average, state funding levels have not declined a whole lot because of their diversification. To the extent they held bonds in their

portfolios or treasuries which actually went up in value recently, their

portfolios haven't suffered declines much below what they were pre-recession

because the stock declines were offset by gains and bonds.

Of course I think stock declines dominated gains on bonds,

so they have declined on average,

but not nearly as much as you might think if you just

looked at the amount stocks have declined I mean they've lost in 2008 they lost

about 40% of their value. And now in 2009, going forward,

they've lost even more.

It's gone to 50% of what they were at their peak.

So state pension funds so far have survived

adverse impact of the recession. But the longer the recession lasts, they will have

more trouble getting revenues to bring funding levels back up to what they would like them to be.

With baby boomers preparing to retire in larger and larger and larger numbers in the coming years and funding levels

being down pretty low, it seems like there's a potential confluence of events that could potentially really damage these state pension funds

...