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http://ssrn.com/abstract=1156477
 
 

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The Intergenerational Transfer of Public Pension Promises


Robert Novy-Marx


Simon Business School, University of Rochester; National Bureau of Economic Research (NBER)

Joshua D. Rauh


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

September 2, 2008

Chicago GSB Research Paper No. 08-13

Abstract:     
The value of pension promises already made by US state governments will grow to approximately $7.9 trillion in 15 years. We study investment strategies of state pension plans and estimate the distribution of future funding outcomes. We conservatively predict a 50% chance of aggregate underfunding greater than $750 billion and a 25% chance of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger. 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.

Number of Pages in PDF File: 43

Keywords: public pensions, financial risk, state and local governments, portfolio choice

JEL Classification: G11, G18, H55, H60, H70, E62

working papers series


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Date posted: July 7, 2008 ; Last revised: November 16, 2008

Suggested Citation

Novy-Marx, Robert and Rauh, Joshua D., The Intergenerational Transfer of Public Pension Promises (September 2, 2008). Chicago GSB Research Paper No. 08-13. Available at SSRN: http://ssrn.com/abstract=1156477 or http://dx.doi.org/10.2139/ssrn.1156477

Contact Information

Robert Novy-Marx
Simon Business School, University of Rochester ( email )
Rochester, NY 14627
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Joshua D. Rauh (Contact Author)
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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