Public pensions provide long-term promises to many people. Quantifying how much at any one point in time, and the cost in any one period of time, involves complex financial models dependent on projections decades into the future.
It isn’t easy. Trying to predict tax flows, government spending, mortality trends and the like out to 2050 is an uncertain exercise. In turn, all those predictions have to be “present valued” using discount factors, themselves the subject of much debate.
The state of Minnesota just received a nasty surprise, when revisions to these calculations showed how sensitive “what we know, and when do we know it?” can be. See this story, for example.
Is Illinois next?
Sometimes, predicting the next year is hard enough, let alone 2045.
Sheila Weinberg and I have been reading the massive recently-passed Illinois budget and appropriations legislation, and we are scratching our heads wondering why the numbers we add up for some Illinois plans for statutory contributions for pension funding for 2018 fall far short of the projected contributions in the actuarial reports.
In turn, this would seem to imply earlier run-out dates, lower discount rates, and a spike in reported liability like Minnesota just experienced.