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Pension Meltdown
Stock Market Booms, Pension Funds Still Sick

Despite average annual returns that have very nearly met actuarial expectations, the nation’s 25-largest public pensions still find themselves deep in a hole—and that hole is getting deeper every day, according to a report by Moody’s Investor Service. Bloomberg:

The 25 biggest systems by assets averaged a 7.45 percent return from 2004 to 2013, close to the expected 7.65 percent rate, Moody’s said in a report released today. Yet the New York-based credit rater’s calculation of liabilities tripled in the eight years through 2012, according to the report.

“Despite the robust investment returns since 2004, annual growth in unfunded pension liabilities has outstripped these returns,” Moody’s said. “This growth is due to inadequate pension contributions, stemming from a variety of actuarial and funding practices, as well as the sheer growth of pension liabilities as benefit accruals accelerate with the passage of time, salary increases and additional years of service.”

Given the strong likelihood that long-term returns won’t equal the blistering pace of the post-recession recovery years, there isn’t much chance the funds will grow their way out of these problems. Ugly times loom ahead: retirees will want to collect on their promises, and states, cities, and towns will be forced to choose between cutting school, police and fire services or making up the shortfall in pensions.

If there were ever a strong case for effective financial regulation, it is here, with the nation’s public pension systems. But the politicians, Wall Street banks, and union bosses who benefit from the current system refuse to get out of the way.

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  • Andrew Allison

    What do Wall Street banks have to do with it? First, the funds are invested, not banked; and second if the pensions were being funded, there would be more fees and commissions, not less. The unions manifestly care only about protecting and increasing their pensions, not how they are to be paid for. Financial regulation of assumed returns and funding levels is what’s necessary to put an end to the public pension Ponzi scheme.

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