Public pension reform

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Pension underfunding has dominated the media and created significant concerns for state lawmakers as they struggle to bring their fiscal houses in order. Before any reforms can be enacted, certain questions must be answered: in reality, how large are the funding shortfalls, and what are the legal boundaries within which reforms can take place? These questions and more are addressed in a series of three research papers commissioned by AEI through a generous grant from the Smith Richardson Foundation. In the series, Andrew G. Biggs and Kent Smetters present the case for market valuation, while Paul Angelo explains how current pension valuation practices are useful to policymakers, and Amy Monahan discusses the legal restrictions surrounding pension reform.

Understanding the argument for market valuation of public pension liabilities
Kent A. Smetters and Andrew G. Biggs

Public pension accounting is undergoing changes as the GASB looks to revise its rules through the recently introduced Statements 67 and 68, even if these do not alter the basic logic — or illogic — of how public pensions value their liabilities. Moreover, public plans themselves are being reformed in a number of states, principally through higher employee contribution rates and lower benefits for newly hired employees. But pension financing will not truly be stabilized until plans first adopt better standards for determining how much they truly owe.

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Understanding the valuation of public pension liabilities: Expected cost versus market price
Paul Angelo

With US state and local economies in slow recovery, workforce costs — including pensions and other benefits — remain front-page news. Taxpayers and public officials want to know the size of their financial obligations to employees and retirees for retirement benefits to assess how much it will cost — today and in the future — to meet those obligations.

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Understanding the legal limits on public pension reform
Amy Monahan

For a wide variety of reasons, many states and municipalities are turning a critical eye toward their employee retirement plans. As various parties debate the merits of different reform measures, it is important to keep in mind that in many states, the law limits potential reform options.

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About the Authors:

Andrew G. Biggs is a Resident Scholar at the American Enterprise Institute where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

 

 

 

Kent A. Smetters is the Boettner Professor of Business Economics and Public Policy at the Wharton School, University of Pennsylvania, and an adjunct scholar at AEI.

 

 

 

Paul Angelo is a senior vice president and actuary for The Segal Company and currently serves as the valuation actuary for 16 major California county and city retirement systems and associations, as well as for the University of California Retirement Systems.

 

 

 

Amy Monahan is a professor and the Solly Robbins Distinguished Research Fellow at the University of Minnesota Law School.

 

 

 

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About the Author

 

Kent
Smetters
  • Kent Smetters is the Boettner Chair Associate Professor at the University of Pennsylvania's Wharton School and a faculty research fellow at the National Bureau of Economic Research. He previously served as deputy assistant secretary for economic policy at the U.S. Treasury. He coauthored Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities (AEI Press, 2003) and coedited The Pension Challenge: Risk Transfers and Retirement Income Security (Oxford University Press, 2004). He has published academic articles in leading journals, including the American Economic Review, the Journal of Political Economy, and The Quarterly Journal of Economics. He is often cited in major media outlets.
  • Phone: 215-898-9811
    Email: ksmetters@aei.org

 

Andrew G.
Biggs
  • Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

    Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President's Commission to Strengthen Social Security. Biggs has been interviewed on radio and television as an expert on retirement issues and on public vs. private sector compensation. He has published widely in academic publications as well as in daily newspapers such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress on numerous occasions. In 2013, the Society of Actuaries appointed Biggs co-vice chair of a blue ribbon panel tasked with analyzing the causes of underfunding in public pension plans and how governments can securely fund plans in the future.

    Biggs holds a bachelor’s degree from Queen's University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.

  • Phone: 202-862-5841
    Email: andrew.biggs@aei.org
  • Assistant Info

    Name: Kelly Funderburk
    Phone: 202-862-5920
    Email: kelly.funderburk@aei.org

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