Public pension funds -There are no quick fixes

The National Conference on Public Employee Retirement Systems (NCPERS) produced a paper, "Ten Ways to Close Public Pension Funding Gaps" which tries to provide some solutions to the problem with public pension shortfalls. All have some merit, but all fall short of the real problem. More money, lots of it, has to be raised or benefits, lots of them, will have to be sacrificed. Without clear specifics for each proposal, it is hard to see how much of the funding gaps will be closed. For those public pensions that are close to full funding any of these choices may be enough to solve any small gap. For those that have significant gaps, the policy proposals will not solve the problem.

The choices:

Leverage and liquify - Borrow money to support pensions or liquify existing assets  

• Pension obligation bonds 
• Action of the Fed - For example, buying municipal bonds to allow leverage and liquidity 
• Bridge loans 
• Securitizing public assets - liquify public assets to pay for benefits

Structural changes - target payments to pensions, obtain scale, target contribution adjustments, increase taxes 

• Dedicated revenue streams 
• Stabilization funds 
• Monthly employer contributions 
• Plan consolidations
• Auto triggers to adjust contributions 
• Reforming revenue and increased taxes 

Why is this a global macro problem? The dynamics of pension will lead to long-term macro drags that cannot be easily solved by monetary policy or federal fiscal policy. If inflation increases or valuations decline, the impact on pay-outs will be real. Any inflation adjustment will not close the funding gap. Lower expected returns will only increase the gap. This is a problem that will have to be addressed by the new US president.