Skip to comments.Public Pensions are Underfunded
Posted on 12/21/2008 4:30:56 AM PST by reaganaut1
The extent to which public pensions are underfunded has been obscured by governmental accounting rules, which allow pension liabilities to be discounted at expected rates of return on pension assets, according to NBER researchers Robert Novy-Marx and Joshua Rauh. In The Intergenerational Transfer of Public Pension Promises (NBER Working Paper No. 14343), they report that over the next 15 years, state pensions are expected to grow to a total of about $7.9 trillion. But Novy-Marx and Rauh conservatively estimate a 50 percent chance that the system will be underfunded by more than $750 billion at that time, and a 25 percent chance of a shortfall of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger, they write. 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.
Novy-Marx and Rauh collected data on the largest defined benefit (DB) pension funds sponsored by U.S. state governments. In a typical DB pension plan, an employer pledges an annual pension payment of an amount that is a function of the employee's final salary and years of employment. To assemble the list of plans, the authors began with data from the Census of Governments published by the U.S. Census Bureau. They studied all plans with more than $1 billion of assets. There were 112 such plans at the end of 2005. They then examined the Comprehensive Annual Financial Report (CAFR) for each pension plan and collected total actuarial liabilities for each, along with the discount rate used by state actuaries to calculate these liabilities.
(Excerpt) Read more at nber.org ...
Funny you say that. Just yesterday, I was explaining to my 17 year old son how SS works. After I explained to him the money he is earning that goes to the SS IOU box he will not see until at LEAST 55 years from now.
He thought I was playing a joke on him.
The joke is on all of us
Yes it is....I'm 47 and I know I'll probably never see a nickle of it. The whole economy of this country will collapse long before then anyway.
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