< The 2015 Pension 40: The Long Climb

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Joshua Rauh
Professor of Finance / Stanford Graduate School of Business
Last year’s rank: 29

When the Pew Charitable Trusts reported in July that U.S. state-run retirement systems ran a $968 billion funding gap in 2013, near-retirees across the nation surely shuddered. Unfortunately, Joshua Rauh, professor of finance at the Stanford Graduate School of Business, believes that gap is more than three times that size. The discrepancy lies in the source of information: Pew takes data from state government disclosures, whereas Rauh recalculates the numbers to better reflect reality. “In order to keep up with ever-rising liabilities, state funds apparently need unbelievably good performance,” says Rauh, 41, who has taught at the University of Chicago Booth School of Business and at Northwestern University’s Kellogg School of Management. The trouble is, funds tend not to live up to their predicted returns on risky assets — a median of 7.75 percent — by the time retirement benefits have to be paid out, Rauh’s research suggests. The “wild return assumptions,” to use his phrase, don’t reflect the fact that benefits have to be disbursed no matter what occurs in the stock market. As a result, unfunded liabilities end up being considerably larger than initially forecast; meanwhile, public retirement systems are accruing new promises faster than they can pay off existing ones. “We’re living through one of the greatest bull markets in the history of stock markets, and to assume that that’s going to continue and to budget accordingly seems to be a very flawed assumption,” says Rauh. The Boston native, who received a Ph.D. in economics from Massachusetts Institute of Technology in 2004, believes this accounting methodology allows state and local governments to run unbalanced budgets while claiming the contrary. He reckons the funding shortfall totals $3.28 trillion; until public pension fund managers acknowledge that reality, he says, they will remain in hot water.

 

 
The 2015 Pension 40

1. Bruce Rauner Illinois 2. John & Laura Arnold Laura and John Arnold Foundation Maximizing Impact: The Role of TAMP Selection in Effective Investment Distribution Sponsored by BlackRock April 14, 2025 3. Chris Christie New Jersey 4. Randi Weingarten AmericanFederation of Teachers 5. Phyllis Borzi U.S. Department of Labor

6. Kevin de León California 7. Alejandro García Padilla Commonwealth ofPuerto Rico 8. Laurence Fink BlackRock 9. Rahm Emanuel Chicago 10. Sean McGarvey North AmericanBuilding Trades Unions

11. John Kline Minnesota 12. J. Mark Iwry U.S. Treasury Department 13. Damon Silvers AFL-CIO 14. Jeffrey Immelt General Electric Co. 15. Joshua Gotbaum Brookings Institution

16. Robin Diamonte United Technologies Corp. 17. Mark Mullet Washington 18. Terry O'Sullivan Laborers' International Union of North America 19. Raymond Dalio Bridgewater Associates 20. Ted Wheeler Oregon

21. Thomas Nyhan Central States Southeast and Southwest Areas Pension Fund 22. Karen Ferguson & Karen Friedman Pensions Rights Center 23. Randy DeFrehn National Coordinating Committee forMultiemployer Plans 24. Robert O'Keef Motorola Solutions 25. Caitlin Long Morgan Stanley

26. Kenneth Feinberg The Law Offices of Kenneth R. Feinberg 27. Orrin Hatch Utah 28. Kathleen Kennedy Townsend Center for Retirement Initiatives, Georgetown University 29. Ian Lanoff Groom Law Group 30. Joshua Rauh Stanford Graduate School of Business

31. Ted Eliopoulos California Public Employees' Retirement System 32. Edward (Ted) Siedle Benchmark Financial Services 33. Teresa Ghilarducci New School for Social Research 34. Denise Nappier Connecticut 35. W. Thomas Reeder Jr. Pension BenefitGuaranty Corp.

36. Hank Kim National Conference on Public Employee Retirement Systems 37. Paul Singer Elliott Management Corp. 38. Bailey Childers National PublicPension Coalition 39. Amy Kessler Prudential Financial 40. Judy Mares U.S. Labor Department