Excellent discussion. Thanks.

I think the situation with state pension funds is even worse than indicated, though. Corporations use interest rates based on long term high-quality bonds to discount back their liabilities. Reasonable. State governments use expected portfolio returns. One could never settle those liabilities, of course, with an insurance company based upon expected portfolio returns. And, as you indicate, their expected returns are backward-looking rather than forward-looking.

I'm not at all convinced that cutting benefits would be politically acceptable. The more likely outcome, IMHO, higher tax rates. And US tax rates are well below those of other OECD countries so there is probably room for such increases.

Bottom line for investors - consider Roth accounts rather than traditional tax-deferred accounts.