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IPFS News Link • Pensions

The Arrival Of The "Unavoidable Pension Crisis"

• by Lance Roberts

To understand we are today, we need a quick review.

"Currently, many pension funds, like the one in Houston, are scrambling to marginally lower return rates, issue debt, raise taxes, or increase contribution limits. The hope is to fill the gaping holes of underfunded liabilities in existing plans. Such measures, combined with an ongoing bull market, and increased participant contributions, will hopefully begin a healing process.

Such is not likely to be the case.

This problems are not something born of the last 'financial crisis,' but rather the culmination of 20-plus years of financial mismanagement.

An April 2016, Moody's analysis pegged the total 75-year unfunded liability for all state and local pension plans at $3.5 trillion. That's the amount not covered by fund assets, future contributions, and investment returns ranging from 3.7% to 4.1%. Another calculation from the American Enterprise Institute comes up with $5.2 trillion, presuming that long-term bond yields an average 2.6%.

With employee contribution requirements extremely low, the need to stretch for higher rates of return have put pensions in a precarious position. The underfunded status of pensions continues to increase."