The Determinants of Public Pension Debt in U.S. States

Jae Young Lim

doi:10.24193/tras.60e.4

Abstract

State and local governments across the United States of America (USA) were hit hard by the recent recession. The fiscal stress alerted the public to the increasing amount of public pension debt for which, despite snowballing levels of pension debt, the causes are unclear. This article examines the factors contributing to annual changes in unfunded public pension ratios, focusing in particular on public pension management (including investment performance, investment assumptions, and accounting practices). The data on pension debt for state defined benefit plans comes from the Pew Charitable Trusts for the period 2005 to 2015. Two methods (random-effects and general estimating equation) were used to verify the consistency of the results. These results showed that investment return decreases the annual change in the public pension debt while using a project unit credit method, and the implementation of the Government Accounting Standards Board (GASB) Statement 67 increase the annual change in the public pension debt. These findings illustrate the importance of public pension management in explaining public pension debt.

Highlights

When the housing bubble burst in the late 2000s, it devastated state and local governments across the US. e nationwide fiscal stress this caused drew a ention to the problem of public pension liabilities1
Two methods were used to verify the consistency of the results. These results showed that investment return decreases the annual change in the public pension debt while using a project unit credit method, and the implementation of the Government Accounting Standards Board (GASB) Statement 67 increase the annual change in the public pension debt
When the housing bubble burst in the late 2000s, it devastated state and local governments across the US. e nationwide fiscal stress this caused drew a ention to the problem of public pension liabilities[1]

Summary

Introduction

When the housing bubble burst in the late 2000s, it devastated state and local governments across the US. e nationwide fiscal stress this caused drew a ention to the problem of public pension liabilities. Is study examines the factors that might influence unfunded public pension liabilities, focusing primarily on dimensions of public pension management. E presentation of the research is organized as follows: first, I discuss factors that might contribute to public pension debt, focusing on public pension management and, secondly, I discuss the data and specific variables used in the model. An increasing number of studies have explored public pension issues; this reflects the growing importance of such pensions in the public arena. From these studies, several themes have emerged. Despite a growing number of studies researching public pensions, few have examined the factors contributing to public pension debt using the ‘annual change in unfunded public pension ratios’ measure. Despite a growing number of studies researching public pensions, few have examined the factors contributing to public pension debt using the ‘annual change in unfunded public pension ratios’ measure. is study does so with a specific focus on the dimensions of public pension management

Public pension management

Public pension management: accounting practices

Dependent variable

Explanatory variables

Findings