An analysis of why current public sector pension accounting standards understate liabilities and encourage excessive risk-taking

It is unlikely that increases in federal employee pension contributions or reductions in pension benefits for future federal retirees would lower total compensation below federal workers’ reservation wage, which represents the minimum pay at which a worker will accept a particular type of job.

Shifting government workers to 401(k)-style plans would offer greater transparency and keep benefits in line with the private economy.

Nebraska's CB plans are innovative and could be a model for other states to follow as they try and bring their budgets and pensions under control. Yet there are other, more transparent and taxpayer-friendly ways Nebraska could construct the pension system.

Using fair-market valuation, Nevada PERS’ unfunded liabilities would rise from about $10 billion to almost $41 billion. Shifting PERS to a defined-contribution, 401(k)-type structure would ensure that benefit obligations are fully funded going forward and that everyone is clear regarding the pensions promises the government has made and its ability to fulfill them.

If Washington pension plans were judged by the standards that private-sector pensions are required to follow, they would face unfunded liabilities exceeding $50 billion. The costs of truly fully funding public-employee pensions could swamp the state budget, and at more than $20,000 per household, taxpayers too.

How have public-sector pensions responded to the financial crisis? By doubling down, thus jeopardizing taxpayers.

Public sector pensions are not discretionary government spending, which can be reduced to maintain affordability. They are deferred pay earned as part of a legally binding contract of employment, and their true cost should be properly measured.

At this event, Charles Blahous will be joined by AEI's Andrew G. Biggs to dissect the competing positions in the current social security debate and offer solutions to resolve their differences.