According to the Center for Retirement Research at Boston College, PUBLIC PENSION plans in the United States are UNDERfunded by some $1 TRILLION! Per the disconcerting Bloomberg link below:* By LAW, states must guarantee ALL public pension fund debts
* As of December 16, 2008, public pensions in the U.S. had Total Liabilities of about $2.9 TRILLION vs. Total Assets equalling approx only $2 TRILLION...a 30% shortfall !
* In terms of Asset Mix, public pension funds typically place 60% of their assets in STOCKS, 30% in bonds/fixed income, 5% in real estate and the remaining 5% in 'riskier assets' such as hedge funds or commodities
* A shortfall of $1 TRILLION has been able to occur/go 'unchecked' due to pension funds being allowed to OVERstate expected market returns on their non-bond pension assets
* According to Bloomberg, actuaries consistently allow public pension funds to report artificially high expected rates of return on their non-bond assets - most often 8.0% and as much as 8.75% (fyi, that's more than the 6.9% billionaire investor Warren Buffet reports/assumes for Berkshire Hathaway Inc.'s pension fund)
* For perspective's sake, some rather disturbing, current real world Examples:
- The U.S.'s Largest Public Pension fund, California Public Employees' Retirement System (CALPERS), has been expecting/assuming an annual market return of 7.75% for the past 8 years (and 8% before that)...meanwhile, CALPERS real annual return from the stock market during December 1998-December 2008 has only been 3.32% !
- The Teacher Retirement System of Texas, the 7th largest U.S. public pension fund, reports each year that its expected/assumed market rate of return is 8%...meanwhile, the pension's real annual return from the stock market during the past 10 years has been only 2.6% !
bloomberg.com/apps/news?pid=20601109&sid
Data Courtesy: Bloomberg
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