State public pension systems' unfunded liabilities have grown to $4.7 trillion, up from $4.1 trillion in 2013, giving them a funded ratio of just 36 percent – assuming you accept the calculations of one controversial approach.
A nonprofit called State Budget Solutions, which has been pushing for state budget reform, arrived at that figure — it's almost five times as high as the number the states use — by using "data from over 250 state-level defined benefit pension plans holding nearly $2.6 trillion in assets" and applying a different discount rate to the one commonly used to calculate the unfunded status of a pension system.
According to the group's report, "Promises Made, Promises Broken," instead of using discount rates based on the assumed rate of investment return, which it said is "far too risky," it discounted liabilities "based on the approximate equivalent of a 15-year U.S. Treasury bond yield."
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That rate, it said, was 2.734 percent.
Saying that there are "several problems with the current system" of calculating funding status, the report singled out the discount rate, saying, "The problem arises because the discount rate is not based on the nature of the assets held by the pension plan, but is rather based on the assumed rate of return."
The report said that states' own assumptions indicate that combined public pension plans are only funded at 72.5 percent, with more than $1 trillion in unfunded liabilities.
It pointed out that states "are often guilty of exacerbating the high discount rate problem by not making the necessary annual contributions to the pension funds," either by reducing them or omitting them altogether.
It singled out New Jersey as one state that has reduced its 2014 contribution by "a whopping $2.4 billion as a way of balancing the state's budget."
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