Public Pension Promises: How Big Are They and What Are They Worth?

  • Author(s): ROBERT NOVY‐MARX, JOSHUA RAUH
  • Published: Jul 19, 2011
  • Pages: 1211-1249
  • DOI: 10.1111/j.1540-6261.2011.01664.x

ABSTRACT

We calculate the present value of state employee pension liabilities using discount rates that reflect the risk of the payments from a taxpayer perspective. If benefits have the same default and recovery characteristics as state general obligation debt, the national total of promised liabilities based on current salary and service is $3.20 trillion. If pensions have higher priority than state debt, the value of liabilities is much larger. Using zero‐coupon Treasury yields, which are default‐free but contain other priced risks, promised liabilities are $4.43 trillion. Liabilities are even larger under broader concepts that account for salary growth and future service.

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