Public Pension Plans Present Problems

by Marilou Moursund on May 8, 2018

in politics,retirement

As we see over and over, governments don’t have to follow the same rules as the private sector.  Public pension plans are very underfunded according to this Wall Street Journal article titled “Pension Funds Still Making Promises They Probably Can’t Keep”.  From the linked article:

But government officials seeking to make their investment targets more conservative have a powerful disincentive: High returns assumptions appeal to elected leaders because they reduce the amount governments need to set aside to cover pension promises. For some, pensions have already caused budget pressure.

Companies don’t have the same flexibility to set return expectations on their pension plans. Pension plans sponsored by S&P 1500 companies have an average 87% of assets needed to cover their pensions promises, according to Mercer, a consultancy.

California and its school districts will have to pay a projected $15 billion or more into the state’s public worker pension plan over the next 20 years after the plan, known as Calpers, in 2016 decided to reduce its investment target to 7% from 7.5% over a three-year period.

Other governments—loathe to cut services or increase taxes—have made a riskier choice, putting more of their money into riskier investments with higher expected returns, such as real estate, commodities, hedge funds and private-equity holdings.

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