Tuesday, March 1, 2011

Economic Policy Institute Study on State Pension Shortfalls

link here to article

There has been a lot of media coverage of state pensions and the extent of their unfunded liabilities. As one might expect much of the coverage has been about headline numbers and very short of analysis. Its just another reason for cutting state spending and for preventing unions from negotiating benefits. This study argues that much of the shortfall is the result of stock market losses between 2007 and 2009. Unfunded liabilities are around $1 trillion. If the pension funds had invested in 30 year treasuries during this period $850 billion would have been gained relative to the loss from stocks. This does not argue for restricting states from investing in stocks. The gains in the stock market during 2010, which are not reflected in the measure of unfunded liabilities at the end of 2009, may have already reduced much of the shortfall. Stock market gains in 2011, if they continue, will also cut into the unfunded liabilities.

The real concern that we should have about unfunded liabilities is their size as a share of future state GDP. On average, they are around 0.2 percent of future state revenues. The study includes data on each state's pension funds. Some are in worse shape than the average. You may want to take a look at the data on the states to see how your state is doing relative to future revenues.

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