This is quite a story, Public Pension Funds $2 trillion short and it's due in part to accounting, according to Orin Krama, chair of the New Jersey Investment council.
The accounting treatment of public retirement plans is the political leper colony of government accounting. It is a no-go zone
It's also due to poor returns and because the accounting results in overestimating returns. It seems pension funds use an 8% rate of return for future estimates and even if that number was used, Krama says funds are still $1 trillion short.
Public pension funds do not use mark-to-market accounting, relying instead on actuarial numbers that average out value of assets and liabilities over a number of years – a process known as “smoothing”. Mr Kramer’s analysis used the market value of the assets and liabilities of the top 25 public pension funds at the end of the year.
He also looked at market interest rates, which are used by corporate pension funds and are lower than the rate of return of about 8 per cent employed by public funds, to calculate future returns. Using the 8 per cent rate of return, the funding requirement of the US public pension system would still be about $1,000bn.
My first thought was how most people do not have any pension at all and many others do not even have a 401k.