• AEA in the news
  • September 22, 2016

Public pensions are being overly optimistic


A column appearing in Bloomberg View highlights a 2009 Journal of Economic Perspectives piece about the precarious balance sheets of U.S. state public pension funds. In The Liabilities and Risks of State-Sponsored Pension Plans, authors Robert Novy-Marx and Joshua Rauh argue that the large amount of future payments that will eventually be owed to former state government employees is understated by standard accounting practices, making state governments seem less indebted than they actually are. Using more realistic discount rates to project the performance of retirement funds, they calculate that the fifty states’ pensions funds were underfunded by a collective $3.23 trillion as of 2008.