Taxpayers must cover at least a third of a $3 trillion bill for public employee pensions even if lawmakers eliminate cost-of-living increases and raise the retirement age, according to an academic study.
“Even if states uniformly eliminated generous early retirement deals and raised the retirement age to 74, the unfunded liability for promises already made would still be more than $1 trillion,” Joshua D. Rauh, associate professor of finance at Northwestern University’s Kellogg School of Management in Evanston, Illinois, said in a statement.
The study of 116 U.S. retirement plans for teachers and government workers showed that as of June 30, 2009, they had $1.89 trillion in assets to cover $3.15 trillion in liabilities, Rauh said. The research used the typical fund’s assumption that investments will earn about 8 percent annually. That is a gap of $1.26 trillion -- more than double the shortfall of a year earlier, according to a study by the Pew Center on the States.
Using more conservative investment assumptions, such as the rate of return on U.S. Treasury zero-coupon bonds on June 30, 2009, the liabilities are $5.28 trillion, Rauh calculated.