Actuarial convention has the effect of driving equity allocations of public
pension plans upward. It also pushes the risk of pension funding onto future
generations of taxpayers, which has fostered taxpayer discontent. Yet, pension
plans in the public sector have much to offer in terms of design features,
benefit security, cost effectiveness, and investment performance. Ideally, they
will evolve into quasi-autonomous financial institutions. For this to happen,
they will have to (1) mark assets and liabilities to market, (2) implement
funding and benefit-improvement disciplines, and (3) cease to pursue social,
political, and economic development ends.