One of the challenges in addressing the underfunding of
public pensions is determining how big the funding gaps are. Estimates vary
because of disagreement over accounting methods. State pension actuaries
calculate pension plans’ future funding using discount rates based on high
rates of expected returns on investments. State officials have an incentive to
engage in this kind of fudging because higher expected returns tomorrow mean
lower contributions into the pension funds today.
This has resulted in states low-balling their future
pension obligations. Now a
new State Budget Solutions (SBS) report goes some way toward
clarifying the picture. The report, by SBS’ Cory Eucalitto, estimates the
nation’s state-level defined benefit pension plans to be underfunded by $4.1
trillion, with a funding ratio of only 39 percent — well below the 73 percent
shown through official reporting.
The SBS report arrived at this estimate by focusing not
on expected investment returns, but on the fixed nature of the liability
itself:…To Read More….
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