Forensic Analysis of Pension Funding: A Tool for Policymakers

Link: https://crr.bc.edu/briefs/forensic-analysis-of-pension-funding-a-tool-for-policymakers/

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Full pdf: https://crr.bc.edu/wp-content/uploads/2022/04/SLP83_.pdf

Key findings:

State and local policymakers face a growing pension cost burden, but often lack understanding of the root causes.

One underappreciated cause is “legacy debt” – unfunded liabilities accumulated long ago, before plans adopted modern funding practices.

Legacy debt still exists today because historical unfunded liabilities were ultimately paid in full using some of the money intended to fund later benefits.

In a sample of plans with particularly low funded ratios, legacy debt averaged more than 40 percent of unfunded liabilities.

A failure to recognize the legacy debt has provided misleading information about benefit generosity, hindering progress toward effective solutions.

Author(s): Jean-Pierre Aubry

Publication Date: April 2022

Publication Site: Center for Retirement Research at Boston College

An Ohio Pension Manager Risks Running Out of Retirement Money. His Answer: Take More Risks.

Link:https://www.wsj.com/articles/an-ohio-pension-manager-risks-running-out-of-retirement-money-his-answer-take-more-risks-11634356831

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Excerpt:

Mr. Majeed is the investment chief for an $18 billion Ohio school pension that provides retirement benefits to more than 80,000 retired librarians, bus drivers, cafeteria workers and other former employees. The problem is that this fund pays out more in pension checks every year than its current workers and employers contribute. That gap helps explain why it is billions short of what it needs to cover its future retirement promises.

“The bucket is leaking,” he said.

The solution for Mr. Majeed — as well as other pension managers across the country — is to take on more investment risk. His fund and many other retirement systems are loading up on illiquid assets such as private equity, private loans to companies and real estate.

So-called “alternative” investments now comprise 24% of public pension fund portfolios, according to the most recent data from the Boston College Center for Retirement Research. That is up from 8% in 2001. During that time, the amount invested in more traditional stocks and bonds dropped to 71% from 89%. At Mr. Majeed’s fund, alternatives were 32% of his portfolio at the end of July, compared with 13% in fiscal 2001.

Author(s): Heather Gillers

Publication Date: 16 Oct 2021

Publication Site: WSJ