Saturday, October 15, 2011

State pension funds - more underfunded.

The degree to which state pension funds are underfunded has increased, in part due to lower bond rates.  This is because the present value of the liability faced by a state should be estimated by discounting the promised retirement payments at something close to a risk free rate.  The risk free rate is very low so the present value of these liabilities is high.

Of course states continue to use 8% to present value these liabilities.