The inclusion of “legacy debt” – unfunded liabilities from long ago – with current liabilities impedes effective pension policy.
A new approach would separate legacy debt from other unfunded liabilities in order to:
spread the legacy cost over multiple generations; and
properly identify fixed vs. variable costs.
It would also use the municipal bond yield – rather than the assumed return on assets – to calculate liabilities and required contributions.
This approach, by properly allocating costs, would improve intergenerational fairness, government resource decisions, and public credibility.
Author(s): Jean-Pierre Aubry
Publication Date: June 2022
Publication Site: Center for Retirement Research at Boston College