Everyone knows that pension funds are underfunded, but the actuarial firm Milliman seems to help them reduce the amount of underfunding in the most recent study.
They suggest shortfall calculations should be based on a 7.65 percent return rather than the traditional 8 percent assumption. Unfortunately, the real world median returns were 3.2 percent for the past five years:

The 100 funds Milliman studied used a median rate of return for their investments of 8 percent. But the recession slashed into the market, dropping actual median returns to just 3.2 percent for the last five years, according to data from Callan Associates.
The difference has prompted critics to claim that the funds are underreporting their unfunded liabilities, or the gap between what they’ve promised to pay retirees in the future and what they’ll actually have on hand to cover the benefits.
Critics have called for public pensions to reduce their assumed rates of return to as little as 5 percent or less, which would cause unfunded liabilities to soar and likely leave taxpayers having to cover the difference.
. . .
The firm, which has done actuarial work for nearly all of the U.S. states in the past, examined each individual fund in the study, using market valuations instead of smoothed valuations to measure assets and recalibrating liabilities based on Milliman’s own benchmarks of expected long-term returns.
The firm found that the median discount rate should actually be 7.65 percent, rather than the 8 percent median rate the funds used in aggregate.

The expected public and private pension shortfalls are obviously going to be much larger than anyone expected.
MORE: Florida Retirement System sticks with 7.75% return assumption