Abstract
The state of Connecticut runs six defined benefit pension funds for its employees, which in the aggregate are among the most poorly funded retirement plans in the country and place increasing fiscal burdens on the state budget. We use a computer model to simulate the finances of these plans, demonstrating how sensitive the plans’ funded ratios and unfunded liabilities are to changes in assumed future investment returns. Future investment returns that are well within the reasonable distribution of outcomes could produce substantially greater unfunded liabilities than even those that currently are reported. This exercise demonstrates the need for greater attention to uncertain investment returns in government analyses and financial disclosures regarding public employee pensions plans.
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