Public Pension Promises: How Big Are They and What Are They Worth?

Authors:
  • RNRobert Novy‐Marx
    Robert Novy‐Marx
  • JRJoshua Rauh
    Joshua Rauh
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Abstract
We calculate the present value of state employee pension liabilities using discount rates that reflect the risk of the payments from a taxpayer perspective. If benefits have the same default and recovery characteristics as state general obligation debt, the national total of promised liabilities based on current salary and service is $3.20 trillion. If pensions have higher priority than state debt, the value of liabilities is much larger. Using zero‐coupon Treasury yields, which are default‐free but contain other priced risks, promised liabilities are $4.43 trillion. Liabilities are even larger under broader concepts that account for salary growth and future service.

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