Monday, December 5, 2022
Hawai'i Free Press

Current Articles | Archives

Thursday, September 13, 2012
The Accounting Trick that Will Haunt Public Pensions
By NCPA @ 4:43 PM :: 3802 Views :: National News, Ethics

The Accounting Trick that Will Haunt Public Pensions

NCPA September 13, 2012

State and local government employee pensions around the country are significantly underfunded. The Governmental Accounting Standards Board (GASB), which is the closest thing to a regulatory body for public pensions, may steer the fate of public pensions to an even worse place than it is now, says Andrew G. Biggs, a resident scholar at the American Enterprise Institute.

GASB, in contradiction to basic economic theory and accounting rules that apply to almost all other pension plans, advises that the pensions should take greater investment risks to improve their funding. That is because GASB rules cause public pensions to understate their liabilities, which provide an incentive to take greater investment risks.

  • State and local pensions discount their future benefit liabilities using an assumed rate of return, typically 8 percent.
  • In 2010, public pensions were around 76 percent funded.
  • However, unfunded liabilities exceeded $750 billion.
  • Using riskless Treasury yields, unfunded liabilities are around $4 trillion, making pension plans unfeasible in the status quo.

In response to criticism, GASB proposed new rules in June that allowed 8 percent discount rates only through years in which the plan's assets are expected to last. Otherwise, they must be valued using a lower municipal bond rate. Moreover, GASB would reduce funding rations by 10 percent.

However, these new regulations will do little to alleviate the problem public pensions are facing.

  • These new regulations give pensions the incentive to take bigger risks.
  • In addition, riskier investments have higher expected returns, which allow for a higher discount rate.

There is still hope that public pensions will become sustainable. Moody's announced recently that it would no longer accept state and local governments' pension liability figures at face value. Moody's said that it would value pension liabilities like it does private pensions: by using yields from high quality corporate bonds. Biggs hopes this will create pressure on governments to correctly manage their pensions.

Source: Andrew G. Biggs, "The Accounting Trick that Will Haunt Public Pensions," Real Clear Policy, September 5, 2012.

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

808 Silent Majority

ACA Signups Hawaii

Alliance Defending Freedom

Aloha Pregnancy Care Center

American Council of Trustees and Alumni

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Astronomy Hawaii

Back da Blue Hawaii

Ballotpedia Hawaii

Better Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

ChinaTownWatch.com

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii

FIRE

Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Habele.org

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

HIEC.Coop

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

July 4 in Hawaii

Kakaako Cares

Keep Hawaii's Heroes

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

MentalIllnessPolicy.org

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

Natatorium.org

National Christian Foundation Hawaii

National Parents Org Hawaii

NFIB Hawaii News

No GMO Means No Aloha

Not Dead Yet, Hawaii

NRA-ILA Hawaii

Oahu Alternative Transport

Obookiah

OHA Lies

Opt Out Today

OurFutureHawaii.com

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons

Pro-GMO Hawaii

P.U.E.O.

RailRipoff.com

Rental by Owner Awareness Assn

ReRoute the Rail

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Save Dillingham Airfield

School Choice in Hawaii

SenatorFong.com

Sink the Jones Act

Statehood for Guam

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

UCC Truths

US Tax Foundation Hawaii Info

VAREP Honolulu

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii

Yes2TMT