Why most state and municipal pension plans are underfunded and why that could lead to higher taxes and reduced government services. Why participants in state government retirement systems have greater protection against benefit cuts than participants in municipal retirement systems.

Topics covered include:

• How defined benefit plans work.
• Why there is more subjectivity regarding valuing a pension plan's liabilities compared with its assets.
• What does it mean for a pension plan to be underfunded, and why are so many public sector pension plans in that situation.
• Under what circumstances can a pension plan cut benefits to beneficiaries.
• Why underfunded pension plans will most likely lead to higher taxes and reduced government services.

Thanks to WIX and Peloton for sponsoring the episode.

For show notes and more information on this episode click here.

• [0:18] The crisis of underfunded defined-benefit state and city pension plans.
• [2:32] Calculating the financial value of a public pension plan.
• [4:46] What rate of return should public pension plans use?
• [8:44] Why public pension plans are highly underfunded.
• [11:34] Kentucky’s 13%-funded pension plan raises red flags.
• [13:37] Failing to meet the needs upfront causes a funding crisis down the road.
• [15:33] Why states cannot go bankrupt but cities can.
• [17:52] How do public sector pension plans affect tax-payers?
• [20:18] How states and cities are trying to solve the crisis.
• [21:45] Considering underfunding when deciding what to invest in or where to live.
• [24:09] How private-sector pension plans could possibly affect tax-payers.

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