1150 Seventeenth Street, N.W., Washington, D.C. 20036
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Email Event
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Video of this event will be livestreamed online at http://american.com/archive/2010/september/public-pension-deficits-how-big-can-they-ever-be-paid
Pensions for public-sector employees are consuming such escalating shares of state and local budgets that governments are faced with the choice between paying for current police, teachers, and firefighters and paying benefits to retired employees. It could be much
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worse. Economists increasingly challenge the accounting used by public-sector pensions, arguing that it hides trillions of dollars in unfunded liabilities that put budgets and taxpayers at serious risk. Taxpayer risk may be exacerbated as pension funds move their investments into more exotic instruments, such as foreign stocks, hedge funds, and private equity, to try for higher returns. So, how big is the public-pension deficit? As the Governmental Accounting Standards Board reviews public-pension accounting, what should it focus on? What are the possible consequences of these changes? At this event, a panel of retirement experts and public policy economists will address the growing threats to the pension liabilities of states and municipalities.
| 1:45 p.m. | Registration | |
| 2:00 |
Panelists: | Andrew G. Biggs, AEI |
| Keith Brainard, National Association of State Retirement Administrators |
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| Douglas J. Elliott, Brookings Institution | ||
| Norm Jones, Gabriel, Roeder, Smith & Company | ||
| Andrew Rettenmaier, Texas A&M University |
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| Moderator: |
Christopher DeMuth, AEI |
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| 3:30 |
Question and Answer | |
| 4:00 |
Adjournment | |
American Enterprise Institute
WASHINGTON, SEPTEMBER 29, 2010--An expert panel met Wednesday to discuss the problem of underfunded public-pension liabilities. Andrew J. Rettenmaier of the Private Enterprise Research Center at Texas A&M University presented his methodology, which estimates the total unfunded liability at over $2.5 trillion. Keith Brainard, the research director for the National Association of State Retirement Administrators, suggested that in some cases the underfunding problem was exaggerated or misunderstood, and argued for the importance of retirement security. Douglas J. Elliot, a fellow at the Brookings Institution, analyzed causes of the underfunding problem and proposed an array of solutions, while stressing the need for Governmental Accounting Standards Board (GASB) accounting reform. Finally, Andrew Biggs, a resident scholar at AEI, discussed limitations in GASB accounting practices and advocated fair-market valuation of pension liabilities as a more complete and accurate calculation.
- "Much has been made, particularly in recent months, about what the appropriate public-pension discount rate is. I think it's important to know there is no one right answer. No one knows what that rate is, and if they did it would depend on the plan and its individual risk profile and the demographics of the fund."
--Keith Brainard, Research Director, National Association of State Retirement Administrators
- "We don't know the answer, or at least I haven't seen anyone who definitively knows the answer, to a really basic question, which is--are the benefit levels that are being promised too high?"
--Douglas J. Elliott, Fellow in Economic Studies, Brookings Institution - "Here I would suggest to you a moral hazard in turning the screws on how liabilities are measured and how expenses are determined. The moral hazard is that there would be a much lower level of retirement security going forward, and I think that would be a terrible, tragic outcome."
--Norm Jones, Chief Actuary, Gabriel, Roeder, Smith & Company - "When GASB talks in plain English about what's going on, they describe it correctly. But then when you look at how you would calculate these things, they're simply missing one of the components of the equation [government's contingent responsibility for funded liabilities]. There are three things that make up the liability; they're counting only two of them."
--Andrew Biggs, Resident Scholar, AEI
Speaker biographies
Andrew Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA's policy research efforts and led the agency's participation in the Social Security Trustees working group. He has investigated the trade-offs involved in meeting Social Security's projected budgetary shortfalls. In 2005, he worked on Social Security reform at the National Economic Council and, in 2001, was on the staff of the President's Commission to Strengthen Social Security. He draws on micro and macroeconomic analysis, financial and behavioral economics, and research into public opinion and political institutions to analyze reforms to improve the effectiveness and long-range solvency of the Social Security program.
Keith Brainard is research director for the National Association of State Retirement Administrators (NASRA). Mr. Brainard has testified on public-pension issues before Congress and state legislative committees, and speaks regularly before public-pension boards of trustees and other groups. He is coauthor of the Governmental Plans Answer Book, author of the NASRA white paper "Myths and Misperceptions of Defined Benefit and Defined Contribution Plans," and coauthor of the 2004 Pension Research Council working paper "Profitable Prudence: The Case for Public Employer Defined Benefit Plans." Mr. Brainard also maintains the Public Fund Survey, an online compendium of public-pension data sponsored jointly by NASRA and the National Council on Teacher Retirement. He previously served as manager of budget and planning for the Arizona State Retirement System. He has also provided fiscal research and analysis for the Texas and Arizona legislatures.
Christopher DeMuth is the D. C. Searle Senior Fellow at AEI. He was president of AEI from December 1986 through December 2008. Previously, he was administrator for information and regulatory affairs in the Office of Management and Budget and executive director of the Presidential Task Force on Regulatory Relief in the Reagan administration; taught economics, law, and regulatory policy at the Kennedy School of Government at Harvard University; practiced regulatory, antitrust, and general corporate law; and worked on urban and environmental policy in the Nixon White House.
Douglas J. Elliott is a fellow in economic studies at the Brookings Institution, where he is a member of the Initiative on Business and Public Policy. Mr. Elliott founded the Center on Federal Financial Institutions in 2003, to provide objective analyses of the federal government’s 100 percent–owned financial institutions. Much of his work there focused on the Pension Benefit Guaranty Corporation and the defined-benefit pension system that it supports. Prior to that, Mr. Elliott spent twenty years as an investment banker focused on financial institutions, primarily at J.P. Morgan. He has testified before both houses of Congress and participated in numerous policy forums as an expert in pension funds.
Norman L. Jones has served as chief actuary at Gabriel, Roeder, Smith & Company (GRS) since 2008, where he monitors the firm’s adherence to established actuarial standards, provides oversight and interpretations of the firm’s actuarial methodologies, and serves as the spokesperson on actuarial issues. Prior to this position, Mr. Jones served as GRS’s president. As president, he helped complete GRS’s 1995 merger with a Florida-based actuarial firm, Kruse, O’Connor & Ling, and its 2001 alliance with Watson Wyatt Worldwide, which resulted in GRS purchasing Watson Wyatt’s U.S.-based public-sector pension practice. Mr. Jones has served public-sector and industry associations through speaking, actuarial opinion writing, and serving on various committees. These organizations include the National Association of State Retirement Administrators, National Council on Teacher Retirement, Conference of Consulting Actuaries, Society of Actuaries, and the Actuarial Standards Board Pension Committee.
Andrew J. Rettenmaier is the executive associate director of the Private Enterprise Research Center at Texas A&M University. He is also a senior fellow at the National Center for Policy Analysis. Mr. Rettenmaier, along with Thomas R. Saving, has testified about Medicare reform before U.S. Senate subcommittees and to the National Bipartisan Commission on the Future of Medicare. Their proposals have been featured in the Wall Street Journal, the New England Journal of Medicine, the Houston Chronicle, and the Dallas Morning News. He and Mr. Saving have published two books on Medicare reform: The Economics of Medicare Reform (W. E. Upjohn Institute for Employment Research, 2000) and The Diagnosis and Treatment of Medicare (AEI Press, 2007). Mr. Rettenmaier and Mr. Saving also coedited Medicare Reform: Issues and Answers (University of Chicago Press, 1999). Mr. Rettenmaier has published numerous public policy monographs and academic articles appearing in economics and health economics journals.
