The Wall Street Journal has a scary story up. It seems public pension plans believe they will get an 8% return on their investments and are playing the great stock market roulette wheel accordingly.
States may be forced to reduce benefits, raise taxes or slash government services to address a $1 trillion funding shortfall in public sector retirement benefits, according to a new study that warns of even more debilitating costs if immediate action isn't taken.
The Pew Center on the States released a survey Thursday of state-administered pension plans, retiree health care and other post-employment benefits in all 50 states that blamed a decade's worth of policy decisions for leaving them shortchanged.
The result for some states will be "high annual costs that come with significant unfunded liabilities, lower bond ratings, less money available for services, higher taxes and the specter of worsening problems in the future," the study said.
This is quite a story, Public Pension Funds $2 trillion short and it's due in part to accounting, according to Orin Krama, chair of the New Jersey Investment council.
The accounting treatment of public retirement plans is the political leper colony of government accounting. It is a no-go zone
It's also due to poor returns and because the accounting results in overestimating returns. It seems pension funds use an 8% rate of return for future estimates and even if that number was used, Krama says funds are still $1 trillion short.
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