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fudging the numbers
Pension Accounting Is Out of Whack

When arguing for the expansion of government social programs, blue model partisans often point to the ways America is supposedly deficient relative to the rest of the world. (I.e., “the U.S. is the developed country to not offer universal paid family leave”).

And when it comes to America’s accounting for its overburdened public pension system, it turns out that America is indeed deficient—but not in a way that makes the blue social model look particularly attractive. As AEI’s Andrew C. Biggs writes in Forbes, states and localities are tallying their pension liabilities using a formula that wouldn’t pass muster internationally:

The Governmental Accounting Standards Board – known as “GASB” – recently held a joint conference with the International Public Sector Accounting Standards Board (IPSASB). Both organizations are responsible for setting accounting standards for government employee pension plans. But if GASB and the U.S. state and local pensions industry looked at IPSASB’s pension accounting standards, they might be shocked: those standards precisely contradict the loose pension accounting rules that GASB promulgates and that the public pensions industry depends on. It’s no exaggeration to say that U.S. state and local pension may not be financially viable if they were required to live under the IPSASB accounting rules that other countries follow.

In other words, U.S. state and local pensions are engaging in systematic accounting tricks—in particular, “discounting” their liabilities at a nearly eight percent rate—so as to conceal the magnitude of their fiscal shortfalls, which are likely trillions of dollars higher than publicly acknowledged.

As Biggs has argued elsewhere, Congress could help hasten a resolution to the pension crisis by mandating that pension funds come clean. But legislators on both parties are eager to kick the can down the road and keep the Ponzi schemes in place. And so the U.S. retains its the dubious distinction of being one of the only developed nations to sanction this level of fiscal dishonesty on the part of its bureaucrats.

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  • Anthony

    Most public pension systems (not a Blue or Red model) across the United States calculate both their pension costs and liabilities under the assumption that assets will achieve rates of returns between 7.5% – 8% per year (despite GASB guidelines). Those assumptions defy partisan labeling. So, yes, there appears to be both hidden debts and deficits in the more than 564 state and local systems in the United States but one cannot imply problem is distinctively Blue (whatever that conjures to the mind).

    “In aggregate, the 564 state and local systems in the United States…reported $1.191 trillion in unfunded pension liabilities (net pension liabilities) under GASB 67 in FY 2014. This reflects total pension liabilities of $4.798 trillion and total pension assets (or fiduciary net position) of $3.607 trillion.”

    Is this fiscal “dishonesty” abstractly defined? Pension accounting is out of whack and the problem has been expertly noted for some time and continues to be here: The question is will anyone truly pay attention?

  • Fat_Man

    As Warren Buffet said: “When the tide goes out, we will find out who has been swimming naked.”

  • FriendlyGoat

    The conservative goal with pensions is to not have them.

    • Tom

      Which seems to be the liberal goal with pensions as well.

      • FriendlyGoat

        Not exactly. Most beneficiaries might well not know who an “actuary” is, what he/she does. and how everybody from auditors to elected officials have allowed him/her to mis-estimate the assumptions for years in both private and public plans.

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