Public Pensions: A Nonexistent Crisis?

That’s what economic Dean Baker asserts in recently published paper.  After looking at how pension fund revenues and expenditures have fared since the meltdown in 2007, here is his conclusion:

The shortfalls facing most state and local pension funds have been seriously misrepresented in public debates. The major cause of these shortfalls has not been inadequate contributions by state governments, but rather the plunge in the stock market following the collapse of the housing bubble. Given the low PE ratios in the stock market, pension fund assumptions on the future rate of return on their assets are consistent with most projections of economic growth and past experience. Furthermore, when expressed relative to the size of their economies, most states are facing shortfalls that appear easily manageable.

In a previous lifetime, I had to do an analysis of the trusteeship structure of New York State’s Common Retirement Fund.  One of the things that struck me at that time was that, in actuarial terms, keeping a pension fund solvent is a fairly straightforward process if (and this is the big if) the owner of the fund is willing to make the contributions dictated by projected “experience gains,” etc.  There would always be some “rough patches” along the way, but a prudent trusteeship could always make it work over the long term.  Baker’s work suggests that this is indeed the case.  It makes one wonder what is motivating the sense of panic about this issue.

Story via Kevin Drum.



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