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The NYT article on the same subject - http://www.nytimes.com/2010/04/07/business/07pension.html http://www.nytimes.com/2010/04/07/business/07pension.html - expl
by tshtf 17y ago
The NYT article on the same subject - http://www.nytimes.com/2010/04/07/business/07pension.html http://www.nytimes.com/2010/04/07/business/07pension.html - explains why:
"Currently, governments discount pension values by using the return they expect their pension investments to earn over the long term. For most public pension funds, that means about 8 percent. In California, the teachers’ fund uses 8 percent, Calpers uses 7.75 percent, and the University fund uses 7.5 percent... After the researchers applied a risk-free rate of 4.14 percent, equivalent to the yield on a 10-year Treasury note, the present value of the promised benefits ballooned. The researchers came up with a $425 billion shortfall for the three funds."
- btilly 17y agoCompounding the issue, in an attempt to achieve those investment rates the pension funds have invested heavily in private equity funds. However during the bubble private equity went on an unsustainable spending spree and those funds are certain to lose large amounts of money when large numbers of bought out companies can't make principal payments that come due in 2011 and 2012. The last time that private equity ran up a bubble like that was in the late 80s. The institutions that invested in private equity funds then were the S&Ls. That was a much smaller bubble than this, and we all know how well that turned out...
- nradov 17y agoA 7.5% long term return on pension investments is a complete fantasy. Look at current T-bond rates. The smart money is betting on low interest rates to last a long time.