Unfunded Pension Liabilities

Another way to look at public pensions is to look at the unfunded liabilities that the citizen is on the hook to pay. Remember, the amount of the unfunded liabilities depend significantly on the assumed investment rate of return. Georgetown citizens are on the hook for the following unfunded public pension liabilities.

Thus we see that the citizens of Georgetown are liable for $1308 in unfunded pensions per capita.

A sustainable fix to America’s public pensions will likely require intensive reforms to state and local governance, including the replacement of defined-benefit plans with 401(k)s and robust checks on the lobbying and political power of public sector unions. But the first step toward implementing these changes is for public administrators to come clean with taxpayers about the real unfunded liabilities.

Both the GISD and Wico pension funds assume an 8% annual return, while the Texas Municipal Retirement System (TMRS) that city uses, assumes a 6.75% rate of return. Until these pension funds adjust their assumed rates of return to a more realistic level, approximately 5+% over the last 5 years, the citizens will not know the actual liabilities.

Public sector pension funds need to be governed by the same rigorous accounting rules that apply in the private sector. Until these reforms are implemented, it’s likely that states and localities will continue to govern by crisis, propping up the current system with every last cent and then declaring bankruptcy or asking for bailouts when it all comes tumbling down.