American states and cities have been lax about putting aside funds for public-sector pensions
in the private sector no longer have them. But most public-sector employees in America are still entitled to a valuable benefit: a pension linked to their final salary. A long-standing problem is that states and cities, which fund their plans differently from the federal government, have been lax about putting aside enough money to cover these promises.
Even those contributions have not been enough. Politicians have often failed to pay in as much as the actuaries recommend. In 2009 the actuaries for the Illinois Teachers scheme asked the state to cough up $2.1bn; it paid just $1.6bn. By 2018 the annual bill had risen to $7.1bn but the state paid only $4.2bn. The hole in the pension scheme deepened to $75bn in 2018, or about $6,000 for every citizen in the state. And that is just for teachers.
And there is a final problem: the schemes’ accounting. When working out how much they need to put aside today, all funded schemes must calculate how much they are likely to pay out in future. This means using a rate to discount the cost of tomorrow’s pension payments. The higher the rate used, the lower the cost seems to be.
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