Actuarial Inputs and the Valuation Of Public Pension Liabilities and Contribution Requirements: A Simulation Approach

Abstract

There are significant concerns about the financial condition of public pensions in U.S. state and local governments. To date, studies of public pensions have given limited attention to the effect of actuarial inputs on the valuation of pension liabilities and contribution requirements. This paper uses a simulated public pension system to examine the sensitivity of actuarial input changes on funding ratios and contribution requirements. We examine instantaneous and lagged effects, marginal and interactive effects, and effects under different funding conditions and demographic profiles. The findings emphasize the difficulty of conducting cross‐sectional analysis of public pension systems and point to several important considerations for future research.