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Economics Of Sustainable Public Pension Funding, Robert M. Costrell, Josh B. Mcgee

Education Reform Faculty and Graduate Students Publications

In this paper we propose a new approach to sustainable public pension funding, as an alternative to: (i) traditional actuarial full-funding policies, on the one hand; and (ii) recent proposals aimed instead at stabilizing pension debt at current levels. Actuarial contribution policies aim to fund liabilities that are wrongly discounted at the expected rate of return on risky assets; and these policies promise to do so with amortization schedules that terminate in a precipitous future drop in contributions, which never materializes. Conversely, recent debt-stabilization proposals (Lenney, Lutz, and Sheiner, 2019a; 2019b) properly discount liabilities at a risk-free rate, but effectively …