Optimal funding of state employee pension systems

Public pension funds are a significant, and rapidly growing, financial forc e in the United States. However, the lack of a consensus on an appropriate funding level is apparent from the wide diversity of funding levels current ly maintained. This research proposes a financial standard for public pensi on plan funding that depends on the current pension obligation and the resp ective growth rates of pension expenses and the tax base, and then compares the optimal funding levels based on this standard with actual funding leve ls by state. Based on this approach, funding levels should vary by state ba sed on economic conditions. However, many states are funding public pension plans at levels well below the optimal values, which creates the potential for serious problems in the future.