Stanford Report: Public Pension Debt Jumps 113% to $5.6 Trillion

The latest report from Stanford University’s “U.S. Pension Tracker” reveals that the market basis total U.S. state and local public employee pension debt is now $5.599 trillion, or $47,388 per household.

Joe Nation, Ph.D. leads a distinguished group of Stanford University faculty members, including Nobel Prize winner William F. Sharpe, who compile and analyze the actuarial, budgetary, demographic, and other financial data necessary to calculate U.S. public pension plan liabilities for each state and the District of Columbia.

“Pension Tracker” is especially illuminating, because the researchers calculate pension liabilities on a “market basis,” to understand how many dollars that taxpayers would need to invest in 20-year risk-free Treasury Bonds at today’s current yield to earn enough money to pay their pension debt; and on the “actuarial basis” guestimate used by state and local pension plans somehow to assume that they can earn each year by making higher-risk stock, bonds and derivative investments.

“Market Basis: Pension Tracker” estimates the public pension debt, if invested in risk-free 20-year maturity Treasury Bonds yielding a fixed yield of 2.75 percent, equals $47,388 per U.S. household — or $17,288 for every man, woman and child in America.

“Actuarial Basis: Pension Tracker” estimates the total debt, if public pension plans earned the 7.5 percent they claim they can earn every-year-forever by taking market risks, would magically reduce the debt by 64 percent, to $11,055 per household and $4,033 for every man, woman and child.

The most immediate problem with “actuarial basis” calculation is that no major pension plan in the 2016 fiscal year, which ended on June 30, reported making more than a 1.5 percent return. The abysmal performance followed public pension plans reporting investment gains of between 2 percent and 4 percent in 2015.

With public pension plans assuming that roughly 80 cents on every dollar paid out to retirees will come from investment earnings, failing to make the 7.5 percent return goal means pension assets are paid out to retirees and the funds have less money to gamble in markets.

Pension Tracker also finds an extraordinarily large impact on average “market based” pensions due to the debt-per-household from Alaska at $110,538; California, at $92,748 and Illinois, at $84,353.

Although Illinois citizens do not have the worst household debt level, they have the worst “market funded ratio” (value of pension assets divided by market liability) of 21.2 percent. That compares to an average of all the 50 U.S. states and Washington D.C. that is almost twice as high, at 37.9 percent.

Despite the Obama administration’s shunting over $10 trillion in federal deficit spending cash to states since 2008, the Stanford report demonstrates that due to increasingly underfunded public employee pensions, the financial solvency for most states has declined substantially during the period.