42 Pages Posted: 23 Sep 2008
Date Written: September 2008
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.
Suggested Citation: Suggested Citation
Novy-Marx, Robert and Rauh, Joshua D., The Intergenerational Transfer of Public Pension Promises (September 2008). NBER Working Paper No. w14343. Available at SSRN: https://ssrn.com/abstract=1271376