Hawaii is among 10 states with public pension fund liabilities that are at least as large as their state’s annual revenue.

The Hawaii Employees’ Retirement System pension fund had a net liability — the difference between projected benefit payments and the assets set aside to cover those payments — of $10.9 billion in the fiscal year that ended June 30, 2011. The liability was 132.5 percent of the state budget for that year, Moody’s Investors Service reported.

Illinois had the largest liability at 241 percent of state revenue. Nebraska had the smallest at 6.8 percent. The median for the 50 states was 45.1 percent.

While it’s been long known that Hawaii’s pension fund assets are inadequate to meet future obligations for state and county retirees, the Moody’s report illustrates the poor shape Hawaii is in compared with most other states.

Besides having the fifth-worst ranking liability as a percentage of state revenue, Hawaii ranked fourth worst for liability per capita of $7,923 and fifth worst for liability as a percentage of state gross domestic product at 16.3 percent.

The pension fund provides retirement, disability and survivor benefits to 113,282 active and retired state and county employees.

Moody’s, which is best known for its credit ratings of companies, said pension liabilities are among many factors it considers when determining a state’s credit rating.

The ratings agency said Hawaii, Illinois, Connecticut, Kentucky, New Jersey and Pennsylvania have been downgraded in the past three years, largely because of how they managed growing pension liabilities. A lower credit rating increases the cost of borrowing money for the state and ultimately leads to higher taxes or fewer services.

Wes Machida, administrator for the Hawaii Employees’ Retirement System (ERS), said, "The ERS board of trustees, working with the governor, Hawaii Legislature, employers and employee organizations, already has taken steps to address ERS’s growing pension liabilities. Such steps taken in 2011, 2012, and 2013 have resulted in across-the-board pension reforms for new members; a moratorium on benefit enhancements until the ERS is 100 percent funded; non-base pay, including overtime, being excluded from the pension calculation for new members; and increased funding to the ERS for those new retirees who met the criteria for ‘pension spiking.’ All of those actions will help to better address the increasing pension liabilities and improve the sustainability of the ERS."

Moody’s said states in general underestimate their pension liabilities. It said the overall ratio of pension plan assets to liabilities, commonly known as the funded ratio, was 48 percent nationwide. State governments say their funded ratio is 74 percent.

Net pension liability has grown because states aren’t paying enough into their pension funds.

"The states that have the largest relative pension liabilities have at least one thing in common: a history of contributing less to their pension plans than the actuarially required contributions," Moody’s said.

The wide variation in the accumulation of state net pension liabilities reflects the differences among states in historical funding efforts, management of benefit levels and the extent to which states assume responsibility for employer pension costs related to teachers and other local government employees in addition to state employees, Moody said.

Earlier this year an actuarial report of Hawaii’s system said the pension fund was in its worst shape since at least 1980 with an $8.4 billion shortfall. Accumulating enough money in the system to pay all benefits due qualified recipients would take 30 years, the report said.

Steps taken in the past two years by the pension plan’s trustees, Gov. Neil Abercrombie and the Legislature are expected to rectify the unfunded liability in 30 years if certain assumptions are met, Machida said.

Those assumptions include the fund receiving an increase in employer and new employee contributions, the investment portfolio returning an average of 7.75 percent annually, and employees and retirees not living longer than 83 years of age on average.

The ERS pension fund had a funded ratio of 59.2 percent at the end of its fiscal year on June 30, 2012, according to a recent actuarial report prepared by the independent Dallas-based firm of Gabriel Roeder Smith & Co. The funded ratio was the lowest since the ERS began tracking ratios around 1980.

The Hawaii pension fund as of March of this year had a market value of $12.3 billion.