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Chapter Three: What Is the Government Investing In?


Published March 5, 2020

In the public sector, government pension plans assume they will achieve high rates of return every year, regardless of the probability that they will occur. It is true that in the past bonds have paid higher rates of return. But with recent low rates, the asset mix needed to achieve the higher expected returns is much riskier than it used to be.

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Video Recorded: August 22, 2019.

Discussion Questions:

  1. What motivates so many state and local governments to underfund their pensions?
  2. Why are state and local governments still using traditional defined-benefit pensions when the private sector has moved toward defined-contribution plans?

Additional Resources:

    Additional Resources:

    • Watch the five-part animated video series based on Josh Rauh’s research on the vast underestimation of public pension liability to gain insight into the hidden debts the next generation will face, available here
    • In “Hidden Debt, Hidden Deficits: 2017 Edition,” Joshua D. Rauh details the issues surrounding the pension system and the role of governments in increasing liabilities and deficits by means of their pension system. Available here.
    • In “A Tale of Six Cities: Underfunded Retiree Health Care,” Rauh and Pozen analyze the retiree health-care systems of six American cities: Boston, Minneapolis, Pittsburgh, San Francisco, San Antonia, and Tampa. They also outline a broad variety of reasonable measures that cities could adopt to materially reduce their long-term OPEB liabilities. Available here.
    • “The Public Pension Crisis” is an essay excerpted from a Hoover report by Joshua Rauh, “Hidden Debt, Hidden Deficits: How Pension Promises Are Consuming State and Local Budgets.” Available here.
    • In “Pension Fund Board Composition and Investment Performance: Evidence from Private Equity,” Rauh, along with Aleksandar Andonov and Yael V. Hochberg, examines the governance of public pension funds and its relationship to investment performance. Available here.
    • In “A Few Trillion Short,” Rauh reveals the government debt owed to public employees, available here.