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Digging deeper

Online tool explores assumptions for pension liabilities

An Arlington, Va.-based non-profit organization has created a free, online tool to help users calculate pension plans' unfunded liabilities.

The Institute for Pension Fund Integrity has designed a calculator that lets users adjust assumed rates of return and the mortality rates of retirees, both of which have an impact on unfunded liabilities.

IPFI President Christopher Burnham, a former Connecticut state treasurer and co-founder, chairman and CEO of Cambridge Global Capital, said the Pension Gap Calculator offers users a "transparent way to look at the unfunded liabilities" and the risks associated with managing their pensions.

"The vast majority of pension plans have not met their average rates of returns, so we're trying to shine a light on states' unfunded liabilities," Mr. Burnham said.

The Pension Gap Calculator, which is available on IPFI's website at ipfiusa.org, aggregates the data from each state's comprehensive annual financial report to display information that allows taxpayers, pension plan participants and policymakers to see the impact of changing the core assumptions.

When a user adjusts the assumptions in the mortality rate calculator, the new assumptions are applied across the board at every age level and are then used to estimate the additional rise or fall in liabilities.

Plus, the calculator can adjust the rate of return from 2% up to 15%. As users lower the assumed rate of return, they increase the level of unfunded liabilities. Of course, a whiz-bang investor might get those liabilities moving in the opposite direction, too.