More On Underfunded Public Pensions

See Faulty Public Pension Accounting: A Problem too Big to Ignore by Ivan Osorio of the Competitive Enterprise Institute Blog. In addition to the excerpt below, it has a good discussion of how the rules are different for public and private pensions and how this is part of the problem.

"The Pew Center on the States made headlines with a new entry into this debate this week. State employee pension funds are underfunded by at least $1.26 trillion, according to a new Pew study. Staggering as that figure is, some analysts have noted that it may in fact be too low, because it is estimated based on state pension managers’ faulty accounting methods — which helped obscure the extent of underfunding for years in the first place.

However, now the critique of the numbers is gaining wider attention. As The Washington Post reports:

In making its calculations, Pew used the states’ assumptions for what their pension funds would earn in annual investment returns, typically 8 percent — a figure that states have mostly met in recent decades but that some analysts think is now overly optimistic.

If states calculated their investment returns the same way that private firms are required to for their pensions, their obligations would balloon to $1.8 trillion, the report said. If states pegged their returns to 30-year Treasury bonds, an even more conservative standard, the liability would be $2.4 trillion."