... but to be forced into retirement in any case ... is no one to be held accountable for all the mess?
iht.com
Stock slump saps public pensions
By Bloomberg News (Bloomberg News)
Tuesday, May 7, 2002
NEW YORK: Because of the two-year slide in the stock market, mayors and governors across the United States may have to fire teachers, close libraries and raise taxes - all to help cover shortages in public employees' retirement funds.
New York City, for example, estimates it needs to contribute $1.77 billion, almost $1 billion more than was forecast two years ago, for its five employee pension funds in the fiscal year that begins July 1. Officials are weighing cuts in care for the elderly and school construction to make up the shortfall.
Public pension losses compound municipalities' budget problems. The states have a $27 billion cumulative budget gap for this fiscal year, according to the National Conference of State Legislatures, and that figure is expected to grow next year.
State and local pension funds managed $2.3 trillion at the end of 2001 on behalf of about 15 million public school teachers, police officers, garbage collectors and other municipal workers.
Public funds' assets dropped $370 billion in 2000 and 2001, primarily because of investment losses, according to Spectrem Group, a pension consultant based in Chicago. The Standard Poor's 500-stock index has fallen 29 percent since its peak in March 2000, and the Nasdaq composite index has plummeted 67 percent.
Monthly benefits in the retirement plans are guaranteed, so local governments must make up any shortfall, either by cutting spending or raising taxes.
To keep pace with liabilities, which generally grow by about 7 percent a year, funds invest around 65 percent of their assets in domestic and international stocks and private equity, with the balance in bonds, real estate and cash.
In the 1990s, this mix of investments produced returns of 12.7 percent a year on average as U.S. stock markets rallied.
Last year, the public pension funds averaged a loss of 4 percent. Bond yields are currently at 5.6 percent, and stock returns are forecast to range between 8 percent and 9 percent annually for the next five to 10 years.
"You almost have to go to 100 percent in equities to meet return targets, and no one is comfortable with that," said Steve Nesbitt, senior managing director at Wilshire Associates, a pension consultant based in Santa Monica, California. |
