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
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.