Sorry folks, I committed the cardinal sin of accepting an assertion from a Washington Post editorial without carefully checking it myself. This morning the Post's lead editorial used the occasion of Detroit's bankruptcy to beat up on public sector pensions. The Post told readers:
"A new survey by scholars at Boston College finds that state and local pension plans have $3.8 trillion in unfunded liabilities, even assuming strong rates of return."
I did actually check the study and saw the chart showing $3.8 trillion in liabilities. I then wrote up my blog post accordingly, pointing out how large $3.8 trillion was in the context of the next 30 years' GDP, the planning horizon for pensions.
But I apparently forgot to think about this number for the necessary 10 seconds before writing. The $3.8 trillion figure should have struck me as way too large for an estimate for unfunded liabilities, and in fact it is. Here's what the Boston College study said (page 2):
"In the aggregate, the actuarial value of assets amounted to $2.8 trillion and liabilities amounted to $3.8 trillion, producing a funded ratio of 73 percent."
You see, the $3.8 trillion figure was an estimate of total liabilities, not unfunded liabilities. Since the pensions have $2.8 trillion in assets, their unfunded liabilities are just $1 trillion. Or, to put this in terms that may be understandable to Post readers, the unfunded liabilities are 0.22 percent of projected GDP over the next 30 years. And, as I noted in my earlier post, most state and local governments are already funding at levels that are consistent with making up this shortfall so there will no required tax increases or spending cuts to meet these future obligations.
So I apologize for accepting the Post's $3.8 trillion figure for unfunded liabilities without looking more closely. Clearly the Post has an agenda to weaken or end public sector pensions and is perfectly happy to use bad numbers to accomplish this goal.
Addendum: The Post added a correction some time on Monday.