Post by Sapphire Capital on Aug 16, 2008 22:58:50 GMT 4
The Intergenerational Transfer of Public Pension Promises
Robert Novy-Marx
University of Chicago - Graduate School of Business
Joshua D. Rauh
University of Chicago - Graduate School of Business; National Bureau of Economic Research (NBER)
July, 07 2008
Abstract:
The value of pension promises already made by US state governments will grow to approximately $7.9 trillion in 15 years. We study investment strategies of state pension plans and estimate the distribution of future funding outcomes. We conservatively predict a 50% chance of aggregate underfunding greater than $750 billion and a 25% chance of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger. Insuring both taxpayers against funding deficits and plan participants against benefit reductions would cost almost $2 trillion today, even though governments portray state pensions as almost fully funded.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1156477_code345896.pdf?abstractid=1156477&mirid=4
Robert Novy-Marx
University of Chicago - Graduate School of Business
Joshua D. Rauh
University of Chicago - Graduate School of Business; National Bureau of Economic Research (NBER)
July, 07 2008
Abstract:
The value of pension promises already made by US state governments will grow to approximately $7.9 trillion in 15 years. We study investment strategies of state pension plans and estimate the distribution of future funding outcomes. We conservatively predict a 50% chance of aggregate underfunding greater than $750 billion and a 25% chance of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger. Insuring both taxpayers against funding deficits and plan participants against benefit reductions would cost almost $2 trillion today, even though governments portray state pensions as almost fully funded.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1156477_code345896.pdf?abstractid=1156477&mirid=4