Jeremy Gold is an actuary and economist studying pensions with an emphasis on financial economics, corporate finance, and investments.
When Detroit went bankrupt in 2013, estimates of pension shortfalls multiplied overnight. The city’s regular actuarial firm had reported pension underfunding at $600 million. A special study performed by a second actuarial firm showed underfunding of $3.5 billion.
So which is it? Why two such different estimates? In a recent talk I gave at MIT, I explained the details.
Pension plans covering the employees of state and local governments are in trouble throughout the U.S. The California cities of San Bernardino, Stockton, and Vallejo filed pension-fueled bankruptcies in recent years. Prichard, Alabama simply ran out of money and stopped paying pension benefits. Illinois and New Jersey have become the poster states for public pension plan troubles, while Kentucky and Connecticut plans may be even more poorly funded. It is hard to tell which state plans are in the most difficulty and it is hard to know which Detroit estimate is better than the other.