Since the Great Recession in 2008, warnings of an impending pension crisis have been splashed across the business pages of newspapers across the country. Despite these boisterous decrees, America’s public pension funds are stable. We explore the roots behind the false pension crisis narrative and examine the facts.

Defined benefit pensions provide the most secure and reliable retirement for working families. DB pension plans are offered in both the public and the private sectors. Despite sharing the same basic plan design, there are a number of important differences between DB plans in these two sectors. Many of these differences are due to the nature of the employers in the public and private sectors. In some cases, these differences are ignored in order to promote the false narrative of a “pension crisis.”

Private companies can and do go out of business. This is not news to anyone. Public employers, such as school districts, fire departments, and municipalities, do not go out of business. Even in the very rare instances of a municipal bankruptcy, the municipalities do not go away. Why does this distinction between public and private employers matter? It matters when it comes to the pension obligations of these different types of employers.

When an employer chooses to offer a pension plan to its employees, it assumes the responsibility for managing and operating that plan. The crucial question in the private sector is: who is responsible for managing that pension plan if the company goes out of business? This is a very real question. During the middle of the twentieth century, a number of corporate closings, most notably Studebaker, led to former employees losing most or all of their pension benefits. This led directly to the passage of the Employee Retirement Income Security Act (ERISA) and the creation of the Pension Benefit Guaranty Corporation (PBGC).

The issue is very different in the public sector. Public pension plans are authorized by state law. In many states, smaller government employers participate in large, statewide pension plans. There is not really a question of public employers going out of business and public employees losing their pension benefits. This is why a recent action by some in the actuarial community is so concerning.

A small, but vocal group is advocating for a change to what is known as the “Actuarial Standards of Practice (ASOP).” These standards govern the work of actuaries of all types. The proposed change would require actuaries to calculate what is known as a “defeasement number” for public pension plans. A defeasement number is basically what it would cost, in total, for an employer to close its plan and pay an insurance company to take care of its pension obligations (basically, a ‘sell price’). The problem is that this is a meaningless number for almost all public plans, as they are neither closing their plans nor selling them to insurance companies.

Due to various constitutional and legal obligations, it is impossible for most public plans to shut down. This means the defeasement number has no value: it is calculating a hypothetical number for something that could never happen in real life. An actuary could tell a local government entity that it would cost, for example, $10 billion to pay out the pension benefits it owes, but if the state constitution protects accrued pension benefits, then that $10 billion number is meaningless because the plan can’t just shut down and be sold off.

Why would actuaries change the ASOPs to require the calculation of a defeasement number for public plans? It seems to be an instance of caving to political pressure. The sinister view says that opponents of public pensions are pushing for this because they know they can use the meaningless defeasement number to scare politicians. Opponents of public pensions love the “big, scary number.” In the aftermath of the financial crisis, anti-pension ideologues claimed that the sky was falling and that public pensions would immediately go bankrupt. Needless to say, that didn’t happen, but these anti-pension actors scared a lot of politicians with overblown rhetoric about public plans.

The same thing could happen with these proposed defeasement numbers. Seeing such a large number could spook politicians, even if the number represents something that could never actually happen. This fear could lead these politicians to push for harmful changes to public pensions that guts retirement security for public employees and increases costs for taxpayers.

Supporters of public pensions should be very wary of this push to mandate actuaries to calculate a defeasement number for public pension plans. There is already a lot of misunderstanding about public plans. Adding a large, meaningless, made-up number to the mix would only make the situation more confusing. Opponents of public pensions would be sure to use the defeasement number to mislead the public and politicians. Additionally, pension plans would have to pay for actuaries to calculate this number. They should not be required to pay for a meaningless number to be used as political ammunition against them. If this change to the ASOPs is adopted, actuaries could unknowingly help promote the false narrative of the pension crisis myth.