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Taxpayers vs. Unions: No Solution for State Pension Woes

John on January 6, 2011 at 8:51 am

That’s the conclusion of Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester. Last year the two academics issued a study of different options to deal with the pension crisis. What they found was discouraging:

Reducing cost-of-living adjustments by 1 percentage point over time would cut pension liabilities 9 percent to 11 percent. And modestly raising the retirement age in the way that some states have debated, would cut the liability only 2 percent to 5 percent.

Even radical cuts such as long-term elimination of any cost-of-living adjustment and raising retirement criteria to match Social Security’s would cut only half of that $3 trillion in unfunded liabilities, Rauh and Novy-Marx projected.

The conclusion? Even if tough measures are taken, taxpayers are going to be on the hook for $1.5 trillion worth of pensions. Thanks unions!

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