As I mentioned in my column this week, the accounting assumptions behind the valuing of government pensions go a long way toward determining whether government workers appear to be overpaid — and also toward determining how much long-term fiscal trouble state and local governments face.

These governments generally assume that pension funds will earn 8 percent a year. That’s roughly the historical return of the stock market. Using that assumption, the Center for Retirement Research at Boston College estimates a current funding gap of $700 billion for all state and local governments.

There are two reasons to question the 8 percent number, however. My own instinct is that one of the reasons is more valid than the other.

The first — the one for which I have not yet heard a persuasive argument — is that the stock market does not return 8 percent a year over every given period. For this reason, companies (and individuals) cannot assume an 8 percent return when valuing their own pensions. If they did, and a lot of employees ended up retiring just after a bear market, the company would find itself without enough money in its pension account to pay its retirees. If any individuals assumed an 8 percent return when building their 401(k), they could be in really bad shape if they wanted to retire after a bear market.

A government seems different, though. It can much more easily smooth over variable returns. It can borrow money at a fairly low rate, for instance, and repay it years or decades later. So long as the pension fund earns 8 percent over the long term, it should be fine. Dean Baker has more on this point in his recent paper on pensions.

The second reason to question the 8 percent assumption strikes me as more valid and more worrisome. Should we really assume that the stock market will return 8 percent in the future, as it has in the past? I’m not so sure.

My favorite measure of the market’s valuation — which compares the current Standard & Poor 500-stock index to the last 10 years of earnings from S.&P. 500 companies — suggests that stocks are fairly expensive today, in historical terms. The rally of the last two years seems to have returned some of the froth to the market. The current 10-year price-earnings ratio is 23, compared with an average of 19 over the last 50 years. (To see the data yourself, download the Excel spreadsheet, which comes with a nice chart, from Robert Shiller’s Web page.)

Mr. Baker is less concerned than I am and points out that stocks outside the S.&P. 500 seems to be less expensive. Maybe so. But 8 percent still seems like an aggressive assumption for state and local governments to be making.

If state and local governments instead assumed a future return of 7 percent, their funding gap would nearly double, to $1.3 trillion, according to Alicia Munnell and her colleagues at the Boston College retirement center. If they assumed a 6 percent return, the funding gap grows to $1.8 trillion.

Even if you believe — as I do — that government workers are not grossly overpaid, you can see that states and local governments have not set aside nearly enough money for their employees’ retirement.