Pension blackhole widens

E20BF98F-6F7F-46C5-B555-401F47B2AD21.jpeg

CM has been saying for quite some time that the US public pension system is a runaway train running out of track. It seems Zerohedge today confirms many of those same trends. The ratcheting down of return targets by ridiculously small amounts because to actuarially mark-to-market to reality is too scary to contemplate.

To quote the article,

CalSTRS is making the bold move to drop its future goal to… 7%…And CalPERS is ratcheting down its return goals in steps to… wait for it, 7% by 2021.

with interest rates near their lowest levels in human history, it’s been difficult for these pensions to generate a suitable return without taking on more and more risk.

And that’s another big problem with pensions – their investment returns are totally unrealistic.

Most pension funds require a minimum annual return of about 8% a year to cover their future liabilities.

But that 8% is really difficult to generate today, especially if you’re buying bonds (which is the largest asset for most pensions). So pensions are allocating more capital to riskier assets like stocks and private equity.”

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s