State and Local Pension Funds: $2 Trillion Deficit

The March 15 Barron’s features an interesting, albeit frightening, article detailing the developing state and local, public employee pension deficiencies. The article notes that, according to a recent study conducted by the Pew Center, eight states (Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island, and West Virginia) lack funding for more than a third of their pension liabilities, and 13 others are less than 80% funded. While the Pew report estimates that the states are currently in the hole $452 billion, other industry observers place that number closer to $2 – $3 trillion. See Robert Novy-Marx and Joshua D. Rauh, The Intergeneration Transfer of Public Pension Promises, Chicago GSB Research Paper No. 08-13, Sept. 2, 2008, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1156477.

Check out the full Barron’s article, entitled “The $2 Trillion Hole,” here.