November 13, 2010
The NYT and other major media outlets have continually referred to public pensions as being “unsustainable” or out of control. The implication is that public sector workers get exorbitant pensions.
In fact the main reason that the public pensions are underfunded at present is not the generosity of the benefits, but rather the plunge in financial markets that followed the collapse of the housing bubble. If public pensions had earned just a modest 5.0 nominal annual rate of return since 2007 their assets would stand at $3.6 trillion today, 41.3 percent above current levels. This would eliminate most, if not all, of the their reported shortfall.
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