No Federal Bailouts for State and Local Government Pension Problems

David C. John / August 27, 2010

There is bad news and worse news for state governments faced with underfunded pension promises. First, a new academic study shows that not only is the total gap between the pensions that state governments have promised to pay their employees and the available resources much larger than previous estimates, but that gap cannot be closed with easy changes to those promises.

Using the usual method of calculating the cost of pension promises, the study estimates that 116 major pension plans sponsored by the 50 states have assets of about $1.8 trillion to pay pension promises of between $3.6 trillion and $5.2 trillion. This leaves a gap of between $1.8 trillion and $3.4 trillion. (more…)