Conservative columnist George Will wrote this article about America’s looming pension crisis. From the article:
Nowadays, America’s most persistent public dishonesties are the wildly optimistic, but politically convenient, expectations for returns on pension fund investments. Last year, when Illinois reduced its expected return on its teachers’ retirement fund from 7.5 percent to 7, this meant a $400 million to $500 million addition to the taxes needed annually for the fund. And expecting 7 percent is probably imprudent. Add to the Illinois example the problems of the 49 other states that have pension debt of at least $19 thousand dollars per household and numerous municipalities, and you will understand why many jurisdictions will be considering buyouts, whereby government workers are offered a lump sum in exchange for smaller pension benefits…
Pensions, including those of private companies, are being buffeted by a perfect storm of adverse events: People are living longer. Economic growth is persistently sluggish. Bond yields have declined dramatically during seven years of near-zero interests rates, which produce higher valuations of equities, lowering the future returns that can be realistically expected. As of last August, the Financial Times reported that pensions run by companies in the S&P 1500 index were underfunded by $562 billion — up $160 billion in just seven months.
And Will doesn’t even mention the structural problems Kingfish has explained with PERS retirees outpacing new hires. That problem will get worse with Governor Bryant having to regularly announce more cuts to the State budget.
And for the “we’re just grow our way out of this in the stock market” crowd, consider this alarming take on the current investment environment:
But all the fancy charts aren’t what worries me most about the stock market and financial system. What bothers me most is mood. People are in a bad mood about the economy and the future. The mood on the street does not justify the record equity market valuations.
If the general public is correct, then the stock market is poised for a big decline. That would crush PERS and make it impossible for politicians to continue to ignore the danger signals.