The Looming Shortfall in Public Pension Costs

Friends, it’s corrupt and it’s theft—from NCPA:

The recent economic crisis has left many state and local governments with underfunded pension benefits for government employees. However, elected officials are unwilling to make the necessary cuts or tax hikes because both options are extremely unpopular, say Robert Novy-Marx, an assistant professor of finance at the University of Rochester’s Simon Graduate School of Business, and Joshua Rauh, a professor of finance at the Stanford Graduate School of Business and a senior fellow at the Hoover Institution.

  • Most states have a defined-benefit pension system that guarantees a certain payment upon retirement.
  • But over the past 10 years, states have added a defined-contribution element in which workers share in the market risk of their pension investments.
  • To fully fund current pension benefits, there would need to be an average tax increase of $1,385 per U.S. household.

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