Just how badly are public pensions underfunded? Here’s a great way to extract an answer:
A good response occurred to me, to those cited by Josh who want to argue that underfunding is a mere $1 trillion. OK, let’s issue the extra $1 trillion of Federal debt. Put it in with the pension assets. Now, convert the pensions entirely to defined-contribution. Give the employees and pensioners their money now, in IRA or 401(k) form. If indeed the pensions are “funded,” then the pensioners are just as well off as if they had the existing pensions. (This might even be a tricky way for states to legally cut the value of their pension promises)
I suspect the other side would not take this deal. Well, tell us how much money you think the pension promises really are worth — how much money we have to give pensioners today, to invest just as the pension plans would, to make them whole. Hmm, I think we’ll end up a lot closer to Josh’s numbers.
Do read the whole thing.