Though it does not fall under the heading of "over definition of market failure", the reforming of State Employee & Publicly Funded Pensions and Benefits is a very, very important issue for current and future beneficiaries. At stake is millions of dollars for which current and future Michigan residents could be liable.

The issue is the funded status of the State of Michigan Employees Pensions. Specifically, is the future value of current assets and future contributions adequate to pay the projected benefit obligation (PBO). Richard Ennis, CFA recently completed a study in which he found that public pensions are only 87% funded--meaning tax payers of the future will be expected to make up the difference--further, after examination of the rate of return assumptions, discount rates, etc.-- he estimated that only 75% of public pensions were adequately funded. Yet further, upon examination of the portfolios of the public pensions he believes they are carrying excessive levels of risk. His conclusion is that pension managers are pushing the limit on risk exposure in order to increase pension plan returns so as to reduce the level of future contributions. For taxpayer and current and future beneficiaries of public pension funds this puts their retirement requirements in a somewhat precarious position.

It will be one of my priorities to transition all State provided pension funds to defined contribution plans (similar to 401(k), 403(b), etc.) where workers are responsible for their own savings and taxpayers will not be liable for beneficiary retirement payments.

Referenced Works:

Ennis, Richard M., CFA. What Ails Public Pensions? Financial Analysts Journal, Vol. 63.6, 38-43.