Unaccountable and Unaffordable, 6th Edition

by Lee Schalk, Nick Stark, Thomas Savidge & Jonathan Williams


Unfunded state pension liabilities total $8.28 trillion or just under $25,000 for every man, woman and child in the United States. This is an unprecedented amount in the history of this report, but most of the change is the result of a decrease in the risk-free discount rate, caused by the decrease in U.S. Treasury note yields. State governments are obligated, often by contract and state constitutional law, to make these pension payments regardless of economic conditions. As these pension payments continue to grow, revenue that could have gone towards tax relief or essential services like public safety and education is spent paying off these liabilities instead.

Unfunded liabilities have increased by $2.45 trillion in this year’s report due to several factors: This study uses a risk-free discount rate, expressed as a percent, to determine the value of liabilities that pension plans must pay in the future. The “riskfree” aspect of our discount rate calculation follows the reality that states cannot default on their pension promises. This risk-free discount rate is based upon the yields of the 10-year and 20-year U.S. Treasury bonds, which means the rate changes each year. With the financial reporting data from 2021, the risk-free discount rate lowered from 2.34% to 1.13%, in part due to historically low interest rates driving down treasury note yields and drastically increasing the present value of liabilities. It is reasonable to expect that as interest rates rise in response to inflation, treasury yields will increase, increasing the risk-free discount rate and returning unfunded liability amounts closer to previous report estimates.

To account for unexpected fluctuations in the risk-free discount rate, this report also measures liability values with a fixed discount rate of 4.5% to account for these changes in the riskfree
discount rate.

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