Blue Model Crisis
The Pension Vise Tightens

It’s been apparent for years that America’s underfunded public employee pension system, one of the backbones of blue model governance, will have to face a brutal reckoning at some time or another, but new data suggest that the date of that reckoning may be sooner than anticipated. Newsmax reports on sluggish growth in pension funds:

U.S. state and local-government pensions are coming off their weakest investment performance in three years, weighed down by losses in international stocks and weak bond returns, according to data from Wilshire Associates Inc.

The pensions logged median increases of about 3.4 percent for the 12 months ended June 30, according to data to be released Tuesday by the Santa Monica, California-based consulting firm…

For the public pensions, which typically target returns of 7 percent or greater, it was the slimmest gain since they earned about 1.5 percent in fiscal 2012.

This past year, in other words, pensions earned less than half the returns they would need to stay solvent over the long term. This will likely force program cuts on many state and local governments, shifting the burden of policymakers’ poor judgment onto the young and vulnerable. It is also likely to lead to escalating political battles between state and local officials and public employees, as even some Democratic politicians come to acknowledge that the existing pension regime is unaffordable.

The lackluster returns will also unfortunately lead many pension funds into riskier investments in the hope of bigger gains. But teacher and police pension funds don’t belong in the casino. Policymakers would be better suited to reform the pension system around the assumption that 7 percent growth is probably unsustainable, rather than trying to achieve it temporarily and ending up with an even bigger crisis on their hands.

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