Public Pension Plans – Alone at Sea

Much has been written this year about the state of public pension plans, with statistics and headlines becoming more startling as the year has gone on. In February, the Pew Center on the States released a report entitled “The Trillion Dollar Gap: Underfunded State Retirement Systems and the Roads to Reform.” By summer, researchers Robert Novy-Marx and Joshua Rauh estimated that gap at $2.5 trillion by accounting for the “risk-free” nature of state pension obligations. Typical of various news stories in September, a FundFire headline read “Many State Pensions Face ‘Death Spiral,’” with the story announcing that fewer than half of state-sponsored pension plans were even 80% funded in 2009 and that those of Illinois and several other states were expected to run out of money within 10 years. Compounding these unfunded state pension obligations are the unfunded liabilities of county, city, and other municipal pension plans, estimated at $574 billion. In October, an editorial in Barron’s summed it all up rather simply: “More Trillions Owed.”