States are Already Paying for Unfunded Pensions

Research by Chicago Booth PhD candidate Chuck Boyer suggests a looming unfunded pensions problem in which unfunded state pension liabilities is a cost that is already reflected in current bond prices. This means that, “Future obligations are having an effect on debt spreads right now”.

Boyer also says that the pension problem has a larger effect on bonds with longer maturities, meaning that unfunded liabilities will possibly affect state solvency 10–20 years later. But at the present moment too, unfunded pensions are increasing states’ borrowing costs and therefore compounding fiscal problems.