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Pension “Death Spiral” Crisis Reaching Fever-Pitch In The US

Pensions across the U.S. are falling deeper into a crisis, as the gap between their assets and liabilities widens at the same time that investment returns are falling, according to Bloomberg

Chief Investment Officer Ben Meng told the board of the California Public Employees’ Retirement System last week: “For the next 10 years, our expected returns are 6.1%, not 7%.”

And if you think you’ve seen panic now, just wait until he finds out that Calpers’ target of 7% – lowered in 2016 – is still a pipe dream.

Put simply: the record, decade long bull market hasn’t been enough to save pensions. The average U.S. plan has only 72.5% of its future obligations in 2018, compared to more than 100% in 2001. The Center for Retirement Research at Boston College attributes the deficit to “recessions, insufficient government contributions and generous benefit guarantees.”

Jean-Pierre Aubry, associate director said: “The really bad plans went heavily out of equities after the financial crisis.”

Pensions that aggressive bet on stock outperformed funds that moved money into alternative investment vehicles, like hedge funds. 

Andrew Junkin, president of Wilshire Consulting, said: “Sometimes diversification, while it’s the right strategy, makes you look dumb.”