How Big is the Pension Bomb?
Taxpayers will have to pay $1,385 more each year for 30 years to fully pay off pension liabilities, according to a new study on the cost of pension plans across the U.S. Robert Novy-Marx and Josh Rauh's analysis is summarized in a Washington Post column here.
For Pennsylvania, these numbers are even higher—$1,550 in additional taxpayer costs per household each year for 30 years.
Readers will note that we have been using a slightly lower figure—with annual costs per household/homeowner rising by $1,050 over the next five years. This calculation was based on projected costs from the State Employees' Retirement System (SERS) and Public School Employees' Retirement System (PSERS).
The main difference between these two cost estimates is that PSERS and SERS assume 7.5 percent annual rate of return on pension investments. Novy-Marx and Rauh use a lower, "risk-free" rate. In short, if pension funds return less than 7.5 percent per year, taxpayers will be on the hook for significantly higher costs than the already-frightening forecasts of our state pension agencies.