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  • Cited by 3
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    This article has been cited by the following publications. This list is generated based on data provided by CrossRef.

    SPLINTER, DAVID 2015. State pension contributions and fiscal stress. Journal of Pension Economics and Finance, p. 1.

    Novy-Marx, Robert and Rauh, Joshua D. 2014. Linking benefits to investment performance in US public pension systems. Journal of Public Economics, Vol. 116, p. 47.

    Thom, Michael 2013. Politics, Fiscal Necessity, or Both? Factors Driving the Enactment of Defined Contribution Accounts for Public Employees. Public Administration Review, Vol. 73, Issue. 3, p. 480.

  • Journal of Pension Economics and Finance, Volume 10, Issue 2
  • April 2011, pp. 173-194

Policy options for state pension systems and their impact on plan liabilities*

  • DOI:
  • Published online: 12 April 2011

We calculate the present value of state pension liabilities under existing policies and separately under policy changes that would affect pension payouts. If promised payments are viewed as default free, then it is appropriate to use discount rates given by the Treasury yield curve. If plans are frozen at June 2009 levels, then the present value of liabilities would be $4.4 trillion. Under the typical actuarial method of recognizing future service and wage increases, this figure rises to $5.2 trillion. Compared to $1.8 trillion in pension fund assets, the baseline level of unfunded liabilities is therefore around $3 trillion. A 1 percentage point reduction in cost-of-living adjustments (COLAs) would lower total liabilities by 9–11%; implementing actuarially fair early retirement would reduce them by 2–5%; and increasing the retirement age by 1 year would reduce them by 2–4%. Dramatic policy changes, such as the elimination of COLAs or the implementation of Social Security retirement age parameters, would leave liabilities around $1.5 trillion more than plan assets. This suggests that taxpayers will bear the lion's share of the costs associated with the legacy liabilities of state DB pension plans.

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Deborah Lucas and Stephen P. Zeldes (2009) How should public plans invest? American Economic Review, 99(2): 527532.

Robert Novy-Marx and Joshua D. Rauh (2009) The risks and liabilities of state sponsored pension plans. Journal of Economic Perspectives, 23(4): 191210.

Robert Novy-Marx and Joshua D. Rauh (2011) Public pension promises: how big are they and what are they worth? Journal of Finance, forthcoming. available at

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Journal of Pension Economics & Finance
  • ISSN: 1474-7472
  • EISSN: 1475-3022
  • URL: /core/journals/journal-of-pension-economics-and-finance
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