A new report suggests that long-term returns for public pensions in the United States are projected to fall to historic lows. This comes as many states and cities come to grips with a $1 trillion funding gap, which continues to increase with each passing year.
The Wall Street Journal is reporting, using data from Wilshire Trust Universe Comparison Service, that 20-year annualized returns for public pensions are set to drop 7.47 percent in the coming weeks. And this is an important development for government employees, including teachers, firefighters and police officers.
Experts warn that the “money has to come from somewhere.” They add that investment returns may continue to diminish with numerous state and local governments facing financial difficulties.
Managers in charge of the retirement funds are also expressing concern. They say down years aren’t as imperative as the long-term average. It is averred that long-term averages can help pay out retiree obligations for decades to come, but if the long-term returns aren’t there then an alarm is waiting to go off.
Just to show how bad off government pensions are, here is one example of a powder keg waiting to explode: the California Public Employees’ Retirement System earned a return of just 0.6 percent on its investments last fiscal year, which is far lower than the long-term averages it has put forward for so many years.
In 2014, according to Moody’s Investors Service, U.S. pension plans were collectively underfunded by $337 billion, a near six percent increase from the previous year. Since the economic collapse, pension liabilities have surged 70 percent. At the same time, assets have only risen 42.5 percent.
In order to make up the difference, the pensions must produce average returns of 7.5 percent annually over the next 20 years.
With unfunded liabilities becoming a major issue, it’s quite likely that the payouts will be negatively affected in the coming years.
Leave a Comment