You owe $14,165 to pay for your city’s employees pensions
October 12, 2010
A new study about the precarious nature of pension shortfalls is likely to take the debate up a few notches. [Business Insider]
Researchers are warning that thanks to unrealistic expectations, cities and states have much bigger pension shortfalls than they’re willing to let on. All told, the gap could hit $3 trillion.
The authors calculated that each household in the 50 cities and counties they studied owes an average of $14,165 to current and past government employees for their pensions.
“The ability of local governments, particularly cities, to provide the levels of service they do now is threatened by this liability,” said Joshua Rauh, a Northwestern University business professor who co-authored the report with Robert Novy-Marx, a University of Rochester professor.
The report is based on an analysis of pension funds in 50 major cities and counties that together account for two-thirds of the nation’s 3 million local government employees. It argues that cities routinely cling to unrealistic projected investment earnings to understate their pension liabilities, a strategy that has been exposed by the financial crisis and recession, which severely diminished investment returns.