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Public Pension Promises: How Big are They and What are They Worth?Robert Novy-MarxUniversity of Rochester - Simon Graduate School of Business; National Bureau of Economic Research (NBER) Joshua D. RauhStanford Graduate School of Business; National Bureau of Economic Research (NBER) October 8, 2010 Journal of Finance, Forthcoming Abstract: We calculate the present value of state employee pension liabilities as of June 2009 using discount rates that reflect the risk of the payments from a taxpayer perspective. If benefits have the same default and recovery characteristics as state general obligation debt, the national total of promised liabilities based on current salary and service is $3.20 trillion. If pensions have higher priority than state debt, the present value of liabilities is much larger. Using zero-coupon Treasury yields, which are default-free but contain other priced risks, promised liabilities are $4.43 trillion. Liabilities are even larger under broader concepts that account for projected salary growth and future service.
Number of Pages in PDF File: 61 Keywords: public pensions, financial risk, state and local governments, portfolio choice, municipal bonds JEL Classification: G11, G18, H55, H60, H70, E62 working papers seriesDate posted: March 5, 2009 ; Last revised: October 13, 2010Suggested CitationContact Information
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