Public Pension Promises: How Big Are They and What Are They Worth?
Article first published online: 19 JUL 2011
© 2011 The American Finance Association
The Journal of Finance
Volume 66, Issue 4, pages 1211–1249, August 2011
How to Cite
NOVY-MARX, R. and RAUH, J. (2011), Public Pension Promises: How Big Are They and What Are They Worth?. The Journal of Finance, 66: 1211–1249. doi: 10.1111/j.1540-6261.2011.01664.x
- Issue published online: 19 JUL 2011
- Article first published online: 19 JUL 2011
We calculate the present value of state employee pension liabilities using discount rates that reflect the risk of the payments from a taxpayer perspective. If benefits have the same default and recovery characteristics as state general obligation debt, the national total of promised liabilities based on current salary and service is $3.20 trillion. If pensions have higher priority than state debt, the value of liabilities is much larger. Using zero-coupon Treasury yields, which are default-free but contain other priced risks, promised liabilities are $4.43 trillion. Liabilities are even larger under broader concepts that account for salary growth and future service.