Over the last week, we’ve seen some conflicting reports on the status of state and local plans nationally. A McClatchy story carried in several local papers suggested that the widely cited problems have been overblown. Quick dissent followed, but let’s allow the no-problem voices to go first.

From McClatchy:

There’s simply no evidence that state pensions are the burden to public finances that critics claim.

Pension contributions from state and local employers aren’t blowing up budgets. They amount to 2.9 percent of state spending, on average, according to the National Association of State Retirement Administrators. The Center for Retirement Research at Boston College puts the figure a bit higher at 3.8 percent.

Further,

“On average, with the assets on hand today, plans are able to pay annual benefits at their current level for another 13 years. This assumes, pessimistically, that plans make no future pension contributions and there is no growth in assets,” said Jean-Pierre Aubry, a researcher specializing in state and local pensions for the nonpartisan Center for Retirement Research at Boston College.

Veronique de Rugy looked into it and draws different conclusions.

In fact, when you look at the source of the McClatchy article’s data, this paper by Alicia Munnell, it’s clear that the journalist has cherry-picked numbers to tell a tale.

Whereas public plans are substantially underfunded, in the aggregate they currently account for only 3.8 percent of state and local spending. Assuming 30-year amortization beginning in 2014, this share would rise to only 5 percent and, even assuming a 5 percent discount rate, to only 9.1 percent. Aggregate data  however hide substantial variation.

The key words ignored in the McClatchy piece are “substantially underfunded” and “substantial variation.”

Moreover,

The article also recycles a point we hear over and over again: that the only reason state pensions are underfunded is the recession.

Nor are state and local government pension funds broke. They’re underfunded, in large measure because — like the investments held in 401(k) plans by American private-sector employees — they sunk along with the entire stock market during the Great Recession of 2007-2009. And like 401(k) plans, the investments made by public-sector pension plans are increasingly on firmer footing as the rising tide on Wall Street lifts all boats.

Not so. First, these numbers (which already look very bad) assume these plans will get average annual returns of 8 percent. Joshua Rauh, Andrew Biggs, Norcross, Doulgas Elliot of Brookings, and many others have hammered on how wrong and irresponsible this approach is.

In this post, Emily flagged the 8 percent assumption in discussing understated pension shortfalls.

Here’s how de Rugy closes:

The bottom line: We can argue endlessly over when the pension plans will run out of cash, or what the value of their unfunded liabilities is. We can even debate the true meaning of being broke.

But there is one issue where there is no room for debate: Once the pension plans run out of money, the payments will have to come out of general funds, meaning taxpayers’ pockets. That will happen very soon: The number of retirees is going up, the promises made have gotten more and more generous over time, and pension plans aren’t underfunded just because of the recession. States are already broke, so if they want to avert a pension crisis, they need to push through reforms as soon as possible.

Right.