Are State Public Pensions Sustainable? Why the Federal Government Should Worry About State Pension Liabilities

Abstract

This paper analyzes the flow of state pension benefit payments relative to asset levels and contributions. Assuming future state contributions fund the full present value of new benefits, many state systems will run out of money in 10-20 years if some attempt is not made to improve the funding of liabilities that have already been accrued. The expected shortfalls raise the possibility that the federal government will be faced with a decision as to whether to bail out states driven to insolvency by their pension programs.

Keywords: Public Pensions, State and Local Government, Public Finance, Pension Reform

JEL Classification: H55, H60, H70, H72, H74