Pew Charitable Trusts released this month a report on U.S. state pension funding gaps. The report is current only through 2013, a measure presumably of how tough it is to get real numbers. The missing $1 trillion represents “historically high levels as a percentage of U.S. GDP” but, if you think about it, isn’t actually that bad against a U.S. GDP of nearly $17 trillion.
There are some interesting points in the report. Chris Christie’s New Jersey moved in the wrong direction, from 68 percent funded in 2011 to 63 percent funded in 2013. Illinois is a joke at 39 percent. Massachusetts has a larger percentage gap than California’s, which is constantly in the news. Wisconsin and South Dakota are 100-percent funded. Don’t they know how to cheat?
One issue with the Pew report, I think, is that it accepts the assumptions built into these funds, e.g., that investment returns close to 8 percent can be obtained every year, that public employees who retire to the golf course at age 50 will drop dead on the actuarially predicted schedule, etc. Generally the economists who have analyzed public pension funds using returns that are actually available in the bond market, for example, have concluded that the gap is closer to 3X the stated gap, in which case states need to scratch up roughly an additional $3 trillion for pensions plus whatever additional they’ll need to pay for promised retiree health care (a worker who retires at age 50, for example, needs 15 years of free health insurance to bridge the gap until Medicare eligibility).
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