Defining and Quantifying the Pension Liabilities of Government Entities in the United States
Jepsen, Nathan H.
Ruddy, John A.
Salerno, David F.
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In today's low interest rate environment, accounting standards and investment return assumptions are crucial when determining the amount of defined benefit pension plan obligations. Examining public pension plan data provided by the U.S. Census Bureau, we show a negative trend in pension plan liabilities of government entities in the U.S. Despite using aggressive return and discount rate assumptions, defined benefit pension plans of government entities in the U.S. currently have an estimated pension liability of over $1 trillion. When more realistic investment assumptions are utilized, the estimated defined benefit pension liability increases to over $5 trillion. Although over the past twenty years, while many for‐profit companies have eliminated defined benefit pension plans years to avoid the risk of underfunding, a high percentage of federal, state and local governments continue to offer defined benefit pensions plans to new and current employees. This has led to growing pension liabilities for government entities in the U.S. resulting in problematic financial positions, difficult decisions, and grim future outlooks.
Jepsen, Nathan H. , John A. Ruddy, and David F. Salerno. "Defining and Quantifying the Pension Liabilities of Government Entities in the United States." Journal of Corporate Accounting and Finance 29, no. 1 (January 2018). DOI:10.1002/jcaf.22320.