This is the Cato Daily Podcast for Tuesday, February 21st, 2012.

I'm Caleb Brown.

Aside from the funding problems faced by state and local pensions, there is another problem.

Everything about those pensions is worse than it looks.

The Cato Institute Senior Fellow Jagadish Goklay is author of the new Cato Report,

state and local pension plans, funding status, asset management, and a look ahead, we spoke today.

State employee pension plans funding status has deteriorated quite significantly during the last decade.

During the early part of the decades, in 2001, almost 90% of state and local employee pension plans, which are mostly defined benefit plans, were adequately funded,

meaning that their assets were at least 80% of their future liabilities measured usually over 20 or 30 or time span into the future.

But during the decade of the 2000s, because of swings in asset prices,

initially we had an asset market implosion in the early 2000s and then we had a recovery in

fact we had a bubble and then the housing market and financial sector debacle that set off the latest recession

started in 2008 also led to asset price declines and that asset price decline has significantly negatively

affected the funding status of state and local pension plans.

But that wouldn't have happened if these

plans were not exposed to risky assets and equities and real estate, which they

were.

And there are regulatory, plan management, and other reasons that explains that risky exposure.

Okay, so for states that want to get right, they should follow along to find out, and they

probably are well aware of what the problems are, but they seem fairly intractable.

That is, in many states, lawmakers are the ones who are charged with taking

money out of revenues and then putting those revenues towards state pensions, which poses a political problem for them.

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