The Bull Market Hasn’t Fixed Public Pensions

Public retirement systems across the country are suffering from a “slate of problems” that the bull market has failed to repair. This according to an article in The Wall Street Journal.

The article reports that “liabilities of major U.S. public pensions are up 64% since 2007 while assets are up 30%, according to the most recent data from Boston College’s Center for Retirement Research.”

The following factors are cited:

  • The dot-com bust of the 2000s and the 2008 financial crisis both depressed the value of assets in state and local retirement systems to the tune of 28% in 2008 and 2009, according to Boston College data.
  • Public pensions endeavored to speed up their yearly contributions to offset investment losses. “Some were able to keep up with those payments,” the article reports, “but others weren’t as they struggled with lower tax revenue and increased demand for government services” in the wake of the 2008 financial crisis.
  • While many states and cities reduced benefits for new employees after 2008, “deeper cuts often met resistance from judges, unions and angry constituents—even in some of the most indebted states.”
  • An aging population has led to a jump in the number of pensioners and a “wave of retirees over the past decade” which has caused an increasing gap between pension fund inflows and outlays.

The article concludes, “Many public pension funds have benefited from the 10-year long bull market. But now many are lowering their predictions of what they can earn in the future. That accounting change makes their liabilities look even larger, portending more strain in the coming decades.”