The Risky Business of Public Pensions

Published: March 18, 2019

State and local governments all around the country have failed to set aside enough money to pay for the pensions they have promised to workers in the public sector. They’re also making unrealistic assumptions about their future investment returns, further risking their budgets and the ability to pay for promised pension benefits. Confronting the true cost of future pension payments would force state and local governments to save more now and prevent budget problems in the future.

Discussion Questions

1. Why are pensions underfunded?
2. Can we ensure that local and state governments use tax money responsibly to meet pension commitments?
3. What motivates local and state governments to make risky investments while knowing the drawbacks?

Additional Resources 

• Watch the five-part animated video series “Pension Pursuit” based on Josh Rauh’s research on the vast underestimation of public pension liability to gain insight into the hidden debts the next generation will face, available here.
• In “Hidden Debt, Hidden Deficits: 2017 Edition,” Joshua D. Rauh details the issues surrounding the pension system and the role of governments in increasing liabilities and deficits by means of their pension system. Available here.
• “The Public Pension Crisis” is an essay excerpted from a new Hoover report by Joshua Rauh, “Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State and Local Budgets.” The full report may be read here.
• In “A Tale of Six Cities: Underfunded Retiree Health Care,” Rauh and Pozen analyze the retiree health care systems of six American cities: Boston, Minneapolis, Pittsburgh, San Francisco, San Antonia, and Tampa, Florida. They also outline a broad variety of reasonable measures that cities could adopt to materially reduce their long-term OPEB liabilities. Available here.