NCPA - National Center for Policy Analysis

The Coming State Pension Disaster

April 13, 2011

Faulty accounting practices stipulated by the Government Accounting Standards Board (GASB) have allowed state retirement systems to dramatically underestimate their pension deficits.  In most states, the trustees of these funds have not provided the right data or even agreed to release it.  This cover-up stands in the way of designing the reforms needed to fix the most serious calamity facing state and local finances, says Rich Danker, project director for economics at American Principles in Action.

  • In a report published a year ago, Andrew Biggs of the American Enterprise Institute calculated that by mid-2008 the states' collective unfunded pension liabilities exceeded $3 trillion.
  • The state pension funds reported $438 billion at the time.
  • Biggs calculated in the same report that the average pension plan has only a 16 percent probability of being able to pay off its liabilities as presently constructed.

Incremental reforms will not fix this picture.  States need to remake their pension systems by restructuring benefits and switching to the defined contribution method of compensation, says Danker.

Source: Rich Danker, "Bad Accounting Hides America's Coming Pension Disaster," Washington Examiner, April 12, 2011.


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