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The 2014 Pension 40: Joshua Rauh

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Joshua Rauh
Professor of Finance
Stanford Graduate School of Business
Last year: 19

Stanford Graduate School of Business finance professor Joshua Rauh has always been interested in the intersection of public policy and economics. In 2000 the Boston-area native left his job as an associate economist with Goldman Sachs International in London to pursue a Ph.D. at the Massachusetts Institute of Technology under the tutelage of award-winning economist James Poterba, president of the National Bureau of Economic Research, who has spent much of his 30-year career focused on public policy. “I really learned from Jim a very empirical approach to research that carries me through today,” says Rauh, 40, who taught at the University of Chicago Booth School of Business and Northwestern University’s Kellogg School of Management before moving to Stanford in 2012. Rauh is best known for his work with former University of Chicago colleague Robert Novy-Marx; the two published a 2009 paper that asserted U.S. state-sponsored pension plans were underfunded by $3.2 trillion, not the $1 trillion the Pew Charitable Trusts was reporting. The main reason for the discrepancy: Rauh and Novy-Marx applied standard financial theory to the problem and calculated future liabilities employing the risk-free interest rate rather than the typical practice among states of using expected investment returns (about 8 percent at the time). Rauh’s latest research is even more troubling. In a working paper analyzing the pensions of ten U.S. cities from 2009 to 2013, the Stanford economist found that total unfunded liabilities had increased 40 percent, to $359 billion, despite a 75 percent increase in the S&P 500 index during the period and some pension benefit reforms. “The growth in unfunded liabilities needs to be halted,” Rauh says. His paper provides a “road map forward,” suggesting that cities consider structural changes including 401(k)-like retirement plans, pooled defined contribution and cash balance plans, and deferred annuity plans.

The 2014 Pension 40

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2
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5
Bruce Rauner
Illinois
John and
Laura Arnold

Laura and John
Arnold Foundation
Randi Weingarten
American Federation of Teachers
Rahm Emanuel
Chicago
David Boies
Boies, Schiller & Flexner
6
7
8
9
10
Randy DeFrehn
National Coordinating Committee for Multiemployer Plans
Damon Silvers
AFL-CIO
Laurence Fink
BlackRock
Chris Christie
New Jersey
Robin Diamonte
United Technologies Corp.
11
12
13
14
15
Ted Eliopoulos
California Public Employees’ Retirement System
John Kline
Minnesota
J. Mark Iwry
U.S. Treasury Department
Gina Raimondo
Rhode Island
Phyllis Borzi
U.S. Labor Department
16
17
18
19
20
Orrin Hatch
Utah
Abigail Johnson
Fidelity Investments
Ted Wheeler
Oregon
Caitlin Long
Morgan Stanley
James Hoffa
International Brotherhood of Teamsters
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22
23
24
25
Amy Kessler
Prudential Financial
Alejandro
García Padilla

Puerto Rico
Christopher Klein
U.S. Bankruptcy Court for the Eastern District of Caifornia
Steven Rhodes
Bankruptcy Court for the Eastern District of Michigan
Kevin de León
California
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28
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30
David Draine
Pew Charitable Trusts
Jordan Marks
National Public Pension Coalition
Sam Liccardo
California
Joshua Rauh
Stanford Graduate School of Business
Karen Ferguson and Karen Friedman
Pension Rights Center
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34
35
Timothy Blake
Moody’s Investors Service
Kathleen Kennedy Townsend
Center for Retirement Initiatives, Georgetown University
Edward (Ted) Siedle
Benchmark Financial Services
Daniel Loeb
Third Point
Judy Mares
Employee Benefits Security Administration, U.S. Labor Department
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40
Andrew Biggs
American Enterprise Institute
Andy Stern
Columbia University
Kenneth Mehlman
KKR & Co.
Teresa Ghilarducci
New School for Social Research
A. Melissa Moye
U.S. Treasury Department


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