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Accrual Measures of Pension-Related Compensation and Wealth of State and Local Government Workers

  • David G. Lenze

    (Bureau of Economic Analysis)

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    This paper develops a method to convert the normal costs and actuarial liabilities published by state and local government retirement systems for their defined benefit pension plans to measures consistent with national income accounting principles. It also standardizes the measures using a common discount rate. The method is applied to data for the years 2000 to 2006 to generate a set of national and state estimates of employer normal costs and liabilities which are then used to improve the estimates of compensation and property income in the National Income and Product Accounts (NIPA). Using a 6% discount rate, our estimated liability of state and local government retirement systems is about 4% lower than the published liability for 2006 and our estimate of normal costs is about 48% higher. Adopting these estimates would add $105 billion (or about 1.0%) to personal income in 2006. Revisions to state estimates of personal income would range from a 0.7% reduction in West Virginia to a 2.3% increase in New Jersey.

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    File URL: http://www.bea.gov/papers/pdf/accrual_measures_of_pension_related_compensation_and.pdf
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    Paper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0054.

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    Date of creation: Aug 2009
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    Handle: RePEc:bea:wpaper:0054
    Contact details of provider: Phone: 202-482-4883
    Web page: http://www.bea.gov/research/index.htm
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    1. Ippolito, Richard A, 1985. "The Labor Contract and True Economic Pension Liabilities," American Economic Review, American Economic Association, vol. 75(5), pages 1031-43, December.
    2. Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
    3. Ronald G. Ehrenberg, 1980. "Retirement system characteristics and compensating wage differentials in the public sector," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 33(4), pages 470-483, July.
    4. Jeffrey R. Brown & David W. Wilcox, 2009. "Discounting State and Local Pension Liabilities," American Economic Review, American Economic Association, vol. 99(2), pages 538-42, May.
    5. Robert Novy-Marx & Joshua D. Rauh, 2008. "The Intergenerational Transfer of Public Pension Promises," NBER Working Papers 14343, National Bureau of Economic Research, Inc.
    6. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
    7. David W. Wilcox, 2006. "Reforming the Defined-Benefit Pension System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 235-304.
    8. Barnow, Burt S & Ehrenberg, Ronald G, 1979. "The Costs of Defined Benefit Pension Plans and Firm Adjustments," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 523-40, November.
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