Friday, December 5, 2008

Public Employee Pension Shortfalls

Budget From Jerry Kalish's Retirement Plan Blog comes word of this National Bureau of Economic Research article by Robert Novy-Marx and Joshua Rauh, The Intergenerational Transfer of Public Pension Promises.  Here's an excerpt:

The value of pension promises already made by US state governments will grow to approximately $7.9 trillion in 15 years. We study investment strategies of state pension plans and estimate the distribution of future funding outcomes. We conservatively predict a 50% chance of aggregate underfunding greater than $750 billion and a 25% chance of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger. Insuring both taxpayers against funding deficits and plan participants against benefit reductions would cost almost $2 trillion today, even though governments portray state pensions as almost fully funded.

(Emphasis added).



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