The Actuarial Sources of the Rise in Unfunded Liabilities in America’s Defined Benefit Plans in the 21st Century

48 Pages Posted: 2 Mar 2023

See all articles by Dillon Fuchsman

Dillon Fuchsman

Saint Louis University - Sinquefield Center for Applied Economic Research

David Hengerer

Equable Institute

Jonathan Moody

Equable Institute

Anthony Randazzo

Equable Institute

Date Written: February 01, 2023

Abstract

Despite a decade-long bull market between the financial crisis and the COVID-19 recession, state DB pension plans had accrued more than $1.37 trillion in unfunded liabilities. However, little work has investigated the actuarial sources of these unfunded liabilities. This paper uses original data hand collected from publicly available financial reports between 2000 and 2020 for 145 state administered pension plans to determine the sources of unfunded liabilities. The largest unfunded liability contributor is investment experiences (when actual investment returns do not match assumed returns). The second and third largest contributors are changes to actuarial assumptions and expected changes (or interest accruing on existing unfunded liabilities). Benefit experience and legislative changes, demographic experience, and explicit funding shortfalls account for relatively little of the growth in unfunded liabilities. Moreover, the specific sources of unfunded liabilities are heterogenous over time and across plans.

Keywords: public pensions, unfunded liabilities

JEL Classification: H75

Suggested Citation

Fuchsman, Dillon and Hengerer, David and Moody, Jonathan and Randazzo, Anthony, The Actuarial Sources of the Rise in Unfunded Liabilities in America’s Defined Benefit Plans in the 21st Century (February 01, 2023). Sinquefield Center for Applied Economic Research Working Paper No. 23-01, Available at SSRN: https://ssrn.com/abstract=4373492 or http://dx.doi.org/10.2139/ssrn.4373492

Dillon Fuchsman (Contact Author)

Saint Louis University - Sinquefield Center for Applied Economic Research ( email )

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David Hengerer

Equable Institute ( email )

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United States

Jonathan Moody

Equable Institute ( email )

28-07 Jackson Avenue
9th Floor
Long Island City, NY 11101
United States

Anthony Randazzo

Equable Institute ( email )

28-07 Jackson Avenue
9th Floor
Long Island City, NY 11101
United States

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

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