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Right -- the problem is underfunding, but the driver of the underfunding of public pensions isn't just that nobody can predict the future; it's that politicians

Right -- the problem is underfunding, but the driver of the underfunding of public pensions isn't just that nobody can predict the future; it's that politicians and union leaders both have morally hazardous incentives to agree to something that both parties know might not hold up in the future, because they (the individual politician and the union leader, specifically) will have moved on from their current roles by the time the wheels fall off in a couple decades. I'm not sure I understand your point about cash and cash equivalents....securities are fungible to cash....the issue is that there's a defined payout every year in $USD, and if the contributions to the fund from which it were paid were modeled in an overly optimistic way, then the fund runs out of money.

sokoloff 9y ago
> your point about cash and cash equivalents. Individuals need to hold a certain amount of their 401K/IRA in cash to pay expenses, to prevent having to sell a lot of stock in a bear market. Individuals will not have the time to recover from a sharp bear market just as they begin retirement. This causes them to miss out on the higher upside in normal and bull markets. (see "sequence risk") Permanent funds, adequately funded, could leave a greater percentage of their money in equities, which has (historically had) higher overall returns despite larger short-term drawdowns.
- leroy_masochist 9y ago
  > Permanent funds, adequately funded, could leave a greater percentage of their money in equities, which has (historically had) higher overall returns despite larger short-term drawdowns. Agree, but they don't. Every pension portfolio I've seen has a lot of fixed income in it.
  - sokoloff 9y ago
    How many of those pension funds are adequately funded? (defined as "could pay out the already earned benefits for all current benefit holders without any future cash infusion") I think you see them holding fixed income and cash equivalents because they need current cash and future cash deposits. (They're pretty damn close to Ponzi schemes in a lot of cases.)

sokoloff 9y ago

> your point about cash and cash equivalents. Individuals need to hold a certain amount of their 401K/IRA in cash to pay expenses, to prevent having to sell a lot of stock in a bear market. Individuals will not have the time to recover from a sharp bear market just as they begin retirement. This causes them to miss out on the higher upside in normal and bull markets. (see "sequence risk") Permanent funds, adequately funded, could leave a greater percentage of their money in equities, which has (historically had) higher overall returns despite larger short-term drawdowns.

leroy_masochist 9y ago
> Permanent funds, adequately funded, could leave a greater percentage of their money in equities, which has (historically had) higher overall returns despite larger short-term drawdowns. Agree, but they don't. Every pension portfolio I've seen has a lot of fixed income in it.
- sokoloff 9y ago
  How many of those pension funds are adequately funded? (defined as "could pay out the already earned benefits for all current benefit holders without any future cash infusion") I think you see them holding fixed income and cash equivalents because they need current cash and future cash deposits. (They're pretty damn close to Ponzi schemes in a lot of cases.)