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Why City Pension Problems Have Not Improved, and a Roadmap Forward

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  • Joshua D. Rauh

    (Stanford University)

Abstract

This paper appears in In Urban Fiscal Stability and Public Pensions, Susan M. Wachter, ed. University of Pennsylvania Press, Forthcoming. This paper studies the evolution of city-level pension liabilities over the period 2009-2013 for ten large U.S. municipalities: New York City, Los Angeles, Chicago, Houston, Philadelphia, Jacksonville, San Francisco, Baltimore, Boston, and Atlanta. Despite increases in public equity valuations of around 75 percent over this time period and public attention called to pension reform, the difference between liabilities under governmental accounting measures and the market value of assets fell by an average of less than 2%. Implementing a market value of liability (MVL) approach that values liabilities using bond yields rather than expected returns on assets, unfunded liabilities rose in all ten cities, and the total rose by 40%, from $277 billion to $359 billion. I provide a roadmap of policy options to address city-level pension imbalances in light of the fact that pension liabilities have continued to grow despite an environment of very robust returns on pension fund assets.

Suggested Citation

  • Joshua D. Rauh, 2015. "Why City Pension Problems Have Not Improved, and a Roadmap Forward," Economics Working Papers 15101, Hoover Institution, Stanford University.
    • Handle: RePEc:hoo:wpaper:15101
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    References listed on IDEAS

    as
    1. Jules H. van Binsbergen & Robert Novy-Marx & Joshua Rauh, 2014. "Financial Valuation of PBGC Insurance with Market-Implied Default Probabilities," NBER Chapters, in: Tax Policy and the Economy, Volume 28, pages 133-154, National Bureau of Economic Research, Inc.
    2. Novy-Marx, Robert & Rauh, Joshua D., 2011. "Policy options for state pension systems and their impact on plan liabilities," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 173-194, April.
    3. Robert Novy-Marx & Joshua D. Rauh, 2008. "The Intergenerational Transfer of Public Pension Promises," NBER Working Papers 14343, National Bureau of Economic Research, Inc.
    4. Rauh Joshua & Novy-Marx Robert, 2010. "Pension Security Bonds: A New Plan to Address the State Pension Crisis," The Economists' Voice, De Gruyter, vol. 7(3), pages 1-4, June.
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