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Unfunded pension liabilities keep growing and this seems alarming to both pension holders but also Municipal Bond holders.

I would like to know how large this problem is to better price Munis and understand their risk. Unfunded pension liabilities (around $3.8 trillion using the market based discount rate) are growing but is this a very large burden or not? This number is based on a discount rate that maturity matches pensions liabilities with today's yield curve.

To answer this I would like to know what is the total liabilities of state and local governments but can't find it anywhere.

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  • $\begingroup$ Very interesting question, could you please cite me the data from which you found this number (3.8T)? At which level is it? $\endgroup$ – raptor22 Sep 27 at 21:32
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    $\begingroup$ The $3.8 Trillion uses the market based discount rate which is based on a discount rate that maturity matches pensions liabilities with today's yield curve. Multiple sources use such discount rates because pension liabilities are like a bond in the sense that they are contractual. So the inflated discount rates pensions use assume they will get stock like returns without the risk. One source where you can find this is papers by Rauh at Stanfords Hoover institution. He has dug deep into this puzzle. hoover.org/research/hidden-debt-hidden-deficits-2017-edition $\endgroup$ – JorgeT Sep 30 at 14:53

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