The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey

George Mason University Mercatus Center Working Paper No. 10-31

34 Pages Posted: 26 Jan 2012

See all articles by Andrew G. Biggs

Andrew G. Biggs

American Enterprise Institute

Eileen Norcross

George Mason University - Mercatus Center

Multiple version iconThere are 2 versions of this paper

Date Written: June 23, 2010

Abstract

Pension plans operated by state governments on behalf of their employees are underfunded by an estimated $452 billion according to official reports,1 with total liabilities of $2.8 trillion and total assets of $2.3 trillion in 2008. However, many economists argue that even these daunting liabilities are understated. Current public sector accounting methods allow plans to assume they can earn highv investment returns without any risk. Using methods that are required for private sector pensions, which value pension liabilities according to likelihood of payment rather than the return expected on pension assets, total liabilities amount to $5.2 trillion and the unfunded liability rises to $3 trillion. The ability of governments to pay for the retirement benefits promised to public sector workers runs up against the reality of limited resources.

Keywords: Public Pensions, State Employees

JEL Classification: H55

Suggested Citation

Biggs, Andrew G. and Norcross, Eileen, The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey (June 23, 2010). George Mason University Mercatus Center Working Paper No. 10-31. Available at SSRN: https://ssrn.com/abstract=1991367 or http://dx.doi.org/10.2139/ssrn.1991367

Andrew G. Biggs (Contact Author)

American Enterprise Institute ( email )

1150 17th Street N.W.
Washington, DC 20036
United States
202-862-5841 (Phone)

HOME PAGE: http://www.aei.org

Eileen Norcross

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
703-993-4930 (Phone)

HOME PAGE: http://https://www.mercatus.org/eileen-norcross

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