US Public Pensions Underfunded by $2 Trillion

[Raeph]

http://www.reuters.com/article/2014/...0RQ2RY20140925

Moody's measured the unfunded liabilities for the 25 biggest public retirement systems between 2004 and 2012. The total future shortfall is more than half the size of the $3.7 trillion municipal bond market, which comprises all the outstanding debt issued by U.S. states and cities.

The gap has widened in spite of the fact that average investment returns over about the same period were 7.45 percent, roughly in line with targets, according to the Wall Street credit rating agency.

"Part of the problem for the level of overall funding is that it is inherently difficult to recover an overall asset position after the double-digit losses seen during the recession," Al Medioli, a Moody's vice president, said in a statement.

In fiscal years 2008 and 2009, at the depth of the economic downturn, the plans' assets dropped nearly 22 percent cumulatively on average, Moody's said.

The 25 systems analyzed by Moody's cover 40 percent of the $5.29 trillion in total assets managed by all U.S. public pensions.

Moody's uses a more conservative method to calculate pension gaps than most of the systems themselves.

Just saw this report today and found in rather interesting considering how far away we are, time wise, from the recession, and the Public Pensions are still horrifically underfunded. Given how underfunded they are now, what should be done to make sure that the pensions are there for the retirees when they need them?

I see potentially six options, each with their own inherent risks:

Nothing - future workers will pay in enough to cover current retirees

Adjust investment plans to try to get greater return

Reduce the future beneficiaries payout to shore up the fund

Reduce all beneficiaries (current and future) payout to shore up the fund

Allow future beneficiaries to take a one time distribution and remove themselves from the fund while seeking a government infusion of funds to protect current beneficiaries

Force all beneficiaries to take a one time distribution and close the fund; future retirees will either have private or defined contribution rather than benefit plans

What are your thoughts?

[Wells]

We could always try putting more money into them.

[Blueobelisk]

Can someone educate me a little? How much do you stand to make by taking out a pension as opposed to just saving retirement money on your own?

[Vizardlorde]

Could always borrow from the future and then cut off pensions for the unborn people FUCK them >.>

[Kujako]

Can someone educate me a little? How much do you stand to make by taking out a pension as opposed to just saving retirement money on your own?

Pensions are given in place of a higher wage that would allow you to save. The idea is that you get under paid now, but you are promised money in the future so you can retire.

[lockedout]

Pensions are given in place of a higher wage that would allow you to save. The idea is that you get under paid now, but you are promised money in the future so you can retire.

I'd rather have the money now.

[Cthulhu 2020]

We could always try putting more money into them.

Nah we need to allocate that money for MORE TANKS (that won't be used).

[Wells]

I'd rather have the money now.

If the pension scales with inflation you probably wouldn't.

[Independent voter]

Make your kids take care of you.

[lockedout]

If the pension scales with inflation you probably wouldn't.

I still would.

[Wells]

I still would.

That's a higher risk decision. Maybe good for you, but a secure and regular pension with a known value is pretty appealing compared to a higher risk investment portfolio, especially if you're not knowledgeable about investing in the first place.

[lockedout]

Nah we need to allocate that money for MORE TANKS (that won't be used).

There are still plenty of police stations that don't have one.

[Wells]

Pensions also regularly outperform 401ks.

[Pwellzor]

If the pension scales with inflation you probably wouldn't.

This means nothing without knowledge of the interest rate and how much money you would receive in replacement.

[Deleted]

I still would.

Unless you invest it very carefully over time, you'd be totally screwed.

[TZK203]

Nah we need to allocate that money for MORE TANKS (that won't be used).

But, but!

The tanks are for my toy collection!

How dare you deny me my toys!

[Wells]

This means nothing without knowledge of the interest rate and how much money you would receive in replacement.

Interest rate has been low and steady for a long time. And even if you had to guess what the inflation rate is you can be almost positive there won't be deflation.

And really if there's deflation, or run away inflation, its not like your stock investment will do any better.

[Pwellzor]

Unless you invest it very carefully over time, you'd be totally screwed.

Most investors don't just throw everything at google and hope it makes them a millionaire.

[Deleted]

This means nothing without knowledge of the interest rate and how much money you would receive in replacement.

Accounting for the depreciation of currency, you'd need quite a lot in savings just for the interest to keep up with it.

Realistically unless you're talking hundreds of thousands in a long term high interest account, the depreciation will screw you.

- - - Updated - - -

Most investors don't just throw everything at google and hope it makes them a millionaire.

I invest in food and drugs, and funeral homes.

And the average retirement age is ~67. If you do a 5 year college education, that gives you 44 years working. Having a successful portfolio over 44 years? If you can do that in the first place, just go into investment professionally.

[Cthulhu 2020]

Pensions also regularly outperform 401ks.

But but, government is bad, and doesn't know how to handle money!