TY  - JOUR
AU  - Novy-Marx,Robert
AU  - Rauh,Joshua D.
TI  - The Intergenerational Transfer of Public Pension Promises
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14343
PY  - 2008
Y2  - September 2008
UR  - http://www.nber.org/papers/w14343
L1  - http://www.nber.org/papers/w14343.pdf
N1  - Author contact info:
Robert Novy-Marx
Simon Graduate School of Business
University of Rochester
305 Schlegel Hall
Rochester, NY  14627
Tel: 773/834-7123
E-Mail: Robert.Novy-Marx@Simon.Rochester.edu

Joshua Rauh
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-4462
Fax: 847/491-5719
E-Mail: joshua-rauh@kellogg.northwestern.edu
AB  - The value of pension promises already made by US state governments will grow to approximately $7.9 trillion in 15 years.  We study investment strategies of state pension plans and estimate the distribution of future funding outcomes.  We conservatively predict a 50% chance of aggregate underfunding greater than $750 billion and a 25% chance of at least $1.75 trillion (in 2005 dollars).  Adjusting for risk, the true intergenerational transfer is substantially larger.  Insuring both taxpayers against funding deficits and plan participants against benefit reductions would cost almost $2 trillion today, even though governments portray state pensions as almost fully funded.
ER  -