Gauging the health of public pension funds has become something of a contact sport, with rating agencies, nonprofit budget reform groups and others weighing in with wildly differing calculations.
Actuaries, budget watchdogs, unions and pension fund managers have for years debated the correct method for calculating a pension fund’s future liabilities. While actuaries say they use standards set by the Government Accounting Standards Board, unions see recent changes by the GASB that pump up those obligations as a way to stoke public sympathy for cutting benefits.
“The argument is compelling that the liabilities of public pension plans, which are guaranteed under state law, should be discounted by a rate that reflects their riskless nature,” Munnell wrote. “Such a change would produce a large number. Liabilities would rise from $3.4 trillion to $4.9 trillion, and with $2.7 trillion of assets on hand, unfunded liabilities would rise from $0.7 trillion to $2.2 trillion.”
A paper published in 2012 by the Mossvar-Rahmani Center at Harvard’s Kennedy School of Government looked at the various methods used to determine the viability of pension funds. The lead author of the paper, Thomas J. Healey, wrote that they include the historical approach used by the standards board; the fair value approach; and the risk-free formula.