Unaccountable and Unaffordable 2016: Unfunded Public Pension Liabilities Near $5.6 Trillion
State public pension plans are now underfunded by nearly $5.6 trillion – an increase of almost $900 billion from State Budget Solutions’ (SBS) last comprehensive report in 2014. When state pension funds are examined through the lens of a more realistic valuation, pension funding gaps are revealed to be much larger than reported in official state financial documents.
While some might feel that America’s public pension crisis only threatens current workers and retirees, it is in fact a problem that affects everyone. Taxpayers are on the hook for the legal obligation to cover the promised benefits of traditional, defined-benefit pension plans. Additionally, every dollar that is spent filling the gap in public pensions is a dollar taken away from core government services.
Assumed return rates should be realistic, and should be thoughtfully determined based on the type of liabilities – in this case, state employees’ defined retirement benefits. It is important for states to adopt this model because in order to keep their promises, states must first understand their true liabilities. By failing to measure liabilities accurately, any attempt at a solution will be hindered.