The value of pension promises already made by US state governments will grow to approximately $7.9 trillion in 15 years. We study investment strategies of state pension plans and estimate the distribution of future funding outcomes. We conservatively predict a 50% chance of aggregate underfunding greater than $750 billion and a 25% chance of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger. Insuring both taxpayers against funding deficits and plan participants against benefit reductions would cost almost $2 trillion today, even though governments portray state pensions as almost fully funded.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14343.
Length: Date of creation: Sep 2008 Date of revision: Handle: RePEc:nbr:nberwo:14343
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Find related papers by JEL classification: G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions H60 - Public Economics - - National Budget, Deficit, and Debt - - - General H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
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