US state pension plans generally use overstated discount rates based on historical performance, creating the appearance of healthy funding at the cost of future underfunding. Conversely, adopting a US Treasury discount rate, or another alternative suggested by previous literature, would cause...

This paper uses stochastic simulations on calibrated models to assess the steady state impact of different pension arrangements in an environment where financial markets are less than perfect. Surprisingly little is known about the optimal split between funded and unfunded systems when there are...