Public employee pensions: How large are the deficits? What changes can be made?

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Event Summary

Public pension funding has become a heated policy issue, three experts revealed at a lunch event at AEI on Thursday, approaching the complicated topic from different perspectives. Amy Monahan, a professor of law at the University of Minnesota, shared the legal context of public pension reform, which, unlike private pensions, is under state rather than federal jurisdiction. She highlighted that differing interpretations of pension agreements across states lead to varying levels of reform opportunities within each state.

Economist Kent Smetters of the University of Pennsylvania and actuary Paul Angelo of the Segal Company then debated the valuation practices of public pension liabilities. Smetters criticized the current valuation practice, which takes into account expected returns on pension assets and places the risk of long-term investment on taxpayers. He argued for a fair-market valuation of public pension liabilities, which would use a lower discount rate because pension benefits must be paid regardless of investment performance.

Angelo defended the current valuation process, which provides information on the expected costs associated with funding future benefits based on both current information and actuarially reasonable expectation of future events. He argued that the market approach overstates liabilities and would unnecessarily burden current taxpayers.

--Brittany Pineros

Event Description

Pension underfunding has dominated the media and created significant concerns for state lawmakers as they struggle to bring their fiscal houses in order. Before any reforms can be enacted, certain questions must be answered: in reality, how large are the funding shortfalls, and what are the legal boundaries within which reforms can take place?

At this event, panelists will address pension reform challenges by presenting the results of three research papers commissioned by AEI through a generous grant from the Smith Richardson Foundation. Kent Smetters will present the case for market valuation, while Paul Angelo will explain how current pension valuation practices are useful to policymakers. Amy Monahan will discuss the legal restrictions surrounding pension reform.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours. 

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