Mish on Stanford pension study

Editor’s Note: Mike “Mish” Shedlock of the popular Global Economic Trend Analysis blog will contribute pieces to CalWatchdog. Here is his take on the Stanford pension liability study that puts the California ununded pension liability at nearly a half-trillion dollars.

Inquiring minds are digging into the Stanford Study Going For Broke: Reforming California’s Public Employee Pension Systems.

Adjusting the discount rate used on liabilities to a risk-free rate, we estimate the combined funding shortfall of CalPERS, CalSTRS, and UCRS prior to the 2008/2009 recession at $425.2 billion (see Table 2).

At the time of this writing, the funds have not released more recent financial reports, but due to the previously mentioned $109.7 billion loss the three funds collectively sustained, we estimate the current shortfall at more than half a trillion dollars.

The American Enterprise Institute report and the Stanford Study independently arrived at similar values for California pension plan unfunded liabilities.

Note that the Stanford study has the unfunded liability of CalPERS $239.7 billion, the AEI report has it at $234 billion, while CalPERS claims the unfunded liability is only$38.6 billion

Similarly, the Stanford study has the unfunded liability of CalSTRS at $156.7, the AEI report has it at $165 Billion, while CalSTRS claims the unfunded liability is only $16.2 billion.

Even if Stanford and AEI are off by 50%, the discrepancy is enormous. Whatever the sad state of affairs is, taxpayers are on the hook for the difference.

The time to stop public defined benefit pension plans was 20 years ago. Unfortunately, it is too late for that now. Nonetheless, it is imperative for states to stop compounding the error by switching to defined contribution plans immediately.

–Mike Shedlock

Check Mish’s interactive map of the nation’s pension plans.