Market-based measures of public pensions funding may better informstate governments and taxpayers of the liabilities and risks they face.

This AEI working paper presents an alternate approach to market valuation of public pension liabilities based upon options pricing methods.

The establishment of new accounting rules for expensing options would likely do more harm than good.

Does a pension plan that takes more investment risk become better funded? Both the current accounting standards and the proposed revisions answer yes, while economic theory and real-world financial markets say no. Until and unless this central question is answered correctly, both the size of pension liabilities and the steps that could address them will be misunderstood.

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

Current state pension accounting practices are inaccurate and outmoded; a more accurate accounting demonstrates that state pension funds are underfunded by more than six times the amount the plans report.

The author discusses the impact of options policy on publicly traded firms and the economy.

Mandatory expensing of stock options will harm small businesses, drive talented managers and workers offshore, and harm the U.S. economy at a critical time.