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Wednesday, October 03, 2018

How Public Pension Boards Are Making a Crisis Worse

Because of the way they're structured, they have incentives to ignore the retirement plans' long-term health.

For the last decade, analysts have been arguing over whom to blame for America's state and local pension crisis. Politicians? Public employee unions? Financial markets? Amid the din, the detrimental role of public pension boards has been overlooked.

There is a mounting body of evidence that pension boards, which oversee the funds created by employer and employee contributions, are partly to blame for the underfunding problem. Pension board members' incentives lead them away from a focus on the plans' long-term fiscal health. In a new report, I document those incentives and their consequences and recommend ways to mitigate -- and even eliminate -- the governance issues.

The long-term costs of failing to act to deal with mounting pension debt are enormous. In 2015, the Federal Reserve estimated that states' and localities' pension funds had accumulated $5.52 trillion in liabilities but had set aside only $3.7 trillion in assets. To ensure that public employees receive the benefits promised by their plans, state and local governments are spending more every year on their pension systems. According to census data, those governments contributed $40.1 billion to their pension systems in 2000; by 2016, that number had skyrocketed to $140.5 billion. In addition, pension funds are making riskier investments in an effort to catch up.

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3 comments:

Anonymous said...

If you don't fund it, there's no benefit. Stop accumulating until you've caught up. It's simple mathematics.

Anonymous said...

Citizens of the shortfall should demand the claw back of funds from the billionaires who made their fortune from the fees they charged pension funds and lost them for the employees.

Anonymous said...

It's past time to investigate the billionaires who got rich off managing pensions funds in the ground but got rich doing it.