Pension funds may be wrecked in a future recession
cassandracapital.net
cassandracapital.net
1. interest rates on government bonds, perceived as the safest asset class, have fallen to historic lows, even below zero in many countries
2. pension funds' expected rate of returns have barely budged since the 1970s (7-8%) despite the fact that interest rates have dropped from double digits to below zero in many cases
3. to make up the loss of yield, pension funds have turned to riskier assets such as stocks
4. fueling the fire, state regulations have been relaxed to allow these public pension funds to invest in risky assets
5. since the 2008 crisis pension funds have been underfunded - they take in too little money to be self-sustaining
6. it's becoming increasingly clear that pensions can't "grow out of" their underfunded positions
7. having loaded up on risky assets, pensions will face large declines in the next recession as stock markets deflate
The joker in the deck is how the pension funds will react to a declining stock market.
Their only viable option would appear to be government bonds. A collective flight into bonds would further depress interest rates. Falling interest rates produces capital gains on bonds, which attracts still more investors, driving rates further down. And so on. Flight to bonds on a large scale driven by pensions would also accelerate stock market declines, making bonds that much more attractive.
Having broken the zero interest barrier, there appears to be no bottom to interest rates anymore. The lack of a bottom opens up some very bizarre scenarios.
* https://en.wikipedia.org/wiki/Index_fund#Pension_investment_...
A part of the fixed-income ("bond") component should be in money market account or term deposits to meet short-term needs.
During/after the Great Recession it took markets about five years to claw back to the same level they were at their peak, but that is an extreme case. Most recessions and bear markets last less than two years before they're back to the same level. Trying 'advanced' techniques generally does not work out well:
* https://awealthofcommonsense.com/2019/02/how-to-wreck-a-pens...
Unless you're a fairly large pension, and are able to throw a decent about of money around to buy "real" assets (pipelines, utilities, airports, marine ports, toll highways), then it's best to stick with passive indexing AFAICT:
* https://en.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Pl...
* https://en.wikipedia.org/wiki/CPP_Investment_Board#Investmen...
If they lower risk, they are not going to get close to their presumed 7-8% growth. Expected stock market growth rates is around 5%(https://www.cnbc.com/2019/02/11/vanguard-cuts-expected-retur...) Rate of return on bonds is even worse.
Assuming this is correct, the choice is either increase contributions, or decrease payouts.
You really can't have the whole market go into passive investments - it'll just cause a large amount of volatility given that market movements will be based on a shrinking number of fund managers.
The flaw in that argument is that it seems to assume individual bonds are perpetuities (actual perpetual bonds are extremely rare). At some point, the bonds you have purchased will actually mature, and you will be paid face value. If it is less than the price at which you purchased the bond, this means you take a capital loss at that point. This decrements your overall rate of return. Therefore, you cannot just drive the price of bonds up forever by ignoring the yield becoming increasingly negative and just focusing on market price appreciation.
> While the ECB wants to spur people to invest, there’s concern that the banks will face mass withdrawals if they introduce negative interest rates for retail clients.
* https://www.bloomberg.com/news/articles/2019-08-25/germany-i...
> Jyske Bank A/S this week said it will charge Danish depositors with 7.5 million kroner ($1.1 million) or more in their accounts; earlier this month, UBS Group AG halved the level at which its annual 0.6% fee kicks in to 500,000 euros ($560,000).
* https://ca.finance.yahoo.com/news/negative-rates-coming-savi...
What do you mean by this? That increased demand causes higher prices causes increased demand under the expectation of the trend continuing?
My fund's 2018 report says the allocation is as follows:
- 37,4% stock
- 50,4% fixed (bonds)
- 10% real estate
- etc.. (derivatives, cash)
The past 2 years the news has also been dominated by the law that governs pension funds in my country. Ever since the ECB cut rates pensions have been cut or been close to it. So it seems we don't allow funds to go riskier, as the article describes. In stead the law forces funds to take their losses now, and not postpone them to a next generation.
And during the '08 crisis I remember a talk from a fund manager that said crises don't matter that much for funds. Since they are all focused on the long term the stock will recover anyway and the best thing to do in a crisis is to buy more stock. What funds automatically do since people can't stop contributing.
So the key point in the article seems to be this:
>"There is one other key reason that public pension funds have transitioned into riskier assets. States have passed laws exempting state government pension plans from the standards that private pension plans are held to. These public pension plans are permitted to use generous assumptions about risk that are not permitted in the private sector. So, while public pensions have moved into objectively riskier assets, they haven’t been forced to account for that risk."
So it seems a lack of regulation is the big problem, not economic downturn every now and then.
So, it's not classical "deregulation" that's the issue, because it's more fundamentally about state governments (in at least some cases) not wanting to raise taxes (or cut other spending) now, so they let pension funds invest in riskier assets to try to make up the difference.
Also, the numbers you give show over a third in stocks, which have experienced drops of 50% in living memory. That would seem to be enough to cause a problem even in that case, wouldn't it?
I tried to find the 2008 report but the oldest one is 2010. Luckily it has a 5-year-earlier section:
It's Dutch but you can see that they lost 14.5% total in 2008 and then made 14.8% return in 2009 and 10% in 2010.
Since they always have fixed income bonds and cash on hand I don't think it's a problem. And in 2018 the fund had €10bn of assets. Seems to be doing great.
And those drops were immediately followed by a return to previous levels. Pension funds are in it for the long term, and has been mentioned elsewhere in the comments a decade of lower stock prices here or there isn't that big of a deal for them. Being underfunded obviously is an issue, however.
Because pensions are not marketable instruments, it's also not possible for these risks to be priced in. (If a bond had, say, a 50% chance of default, its price on the market would also decrease, pushing up its effective yield.
It seems pensions are more of an instrument that is doomed to fail, and expecting them to hold up to their promises is going to lead to a lot of pain for either retirees, or the current and future workers supporting them.
The problem isn't the financial model of pensions, but the politics of it. Lowering the expected rate of return of a pension fund causes a huge increase in the funding requirements that are calculated, and a suddenly appearing budget problem such as this is bad news for people's political careers.
The same problem exists in the private sector. Changing the model to project a lower rate of return hurts profit numbers in the near term and makes a huge liability appear on the balance sheet, so executives will kick the can down the road as much as they can. The problem is only worse with public sector pensions because of regulatory differences.
That is traditionally what most people mean by "pension", but it is DB pensions aren't the only kind. There are also defined contribution (DC) pensions:
Lack of regulation of itself. Maybe the problem is that government shouldn't have people's retirement funds to manage.
True, we shoukd leave it to private industries.
https://en.wikipedia.org/wiki/Robert_Maxwell#Aftermath:_Thef...
I guess you're american as they seem to doubt government all the time, despite it working in other countries.
They do some due diligence, but it isn’t debatable how good the asset liability management is.
All pension funds, effectively, have government as, at minimum, the backstop. No way the government would let a large private pension fund fail. (At least, I don't think they would? Maybe I'm being naive?)
If its a chunk big enough like the 2008 crisis, then they swoop in.
Remember to bet in things that fail big time!
The main reason people would choose a public administration of finances is to get the promise that if they fail, some other sucker will pay taxes to cover it.
Hmm, if enough did this and put it together in some vault and perhaps lent some fractional amount of this money if an appropriate opportunity presented itself you might even make money on this. I just described a working banking system.
Makes me wonder how banks could even be solvent in this environment. Are they just regulated into existence.
It all sounds like a house of cards at this point.
I mean I don't really want to be doing that but right now, putting money in savings and keeping it is basically costing me 2-3% of its value a year due to inflation.
N.B., inflation (CPI-U) averaged 1.5% per year over the last 5 years, if my calculation is correct.
Europe is a different story, I don't know entirely how they run their monetary system.
The low interest rates raised asset values to the point where they weren't sitting on heavy losses any more.
* higher interest rates are disliked by private capital because they a) cause competition for capital b) require higher taxes to fund interest payments c) induce higher "erosion" of large collections of capital
* lower interest rates are liked by private capital for precisely the complementary reasons a) interest is not competition for capital b) require lower taxes c) induce less "erosion"
Higher interest rates in an idealized sense are perhaps better, but in our current environment, it is generally not feasible to raise them, absent a convincing story for growth to match.
Funding the future is hard, and the balance between entitlement and resource governance is hard, but in the US, in the game between individual capital-oriented private interests and generic public interests, public interests generally lose. This is by far the largest contributing factor to pension "decimation."
Finally, small point- for individuals, using macro-reported inflation is, to a first approximation, a mistake. What matters to an individual are changes in actual cost of living, which are historically extremely localized.
One of his latest ones: https://www.linkedin.com/pulse/three-big-issues-1930s-analog...
Christ nobody wants to live in 1935-1945. That period set the All-time record for violent death
https://www.vox.com/2015/6/23/8832311/war-casualties-600-yea...
I am not a financial planner, but investing in riskier bonds because safe ones pay little interest has burned many investors over the years. If you do that you need to be ready to move quickly (quicker than many pro houses with billions invested in tech) if those riskier companies start going belly up. Personally, in this climate I keep short term cash in checking and use TIPS or similar if I wanted bonds. Whatever is invested I view as potentially untouchable for 10+ years. Just my 2c.
It feels very weird.
Houses can go down, but interest can't go down a lot at 0%. In a slump without credit houses can go up, and interests can go down.
For every event like the 2008 they get right, they get a 50 or more predictions wrong.
1. Cassandra Capital is "somehow" getting to the top on HN quite frequently (this is not true of other communities I participate in)
2. Pretty much everything in this comment chain lines up with my experience https://www.reddit.com/r/investing/comments/cz3w52/pension_f...
3. I'm no longer clicking through on Cassandra Capital articles and maybe some people here who care about how what they read influences financial decisions should also do some background research
I’m sorry if you don’t like the quality of my article. But I felt I should respond to the insinuation that I’m doing something underhanded to “somehow” get to the top of hacker news.
I did absolutely nothing to get to the top other than submit the post this morning.
I have been working on my book as a passion project for two years. It is very unlikely that I will ever recoup the money I spent writing it, printing copies, researching etc.
Now that I’ve finished my book I’ve been posting articles on economics and geopolitics because it’s a topic I enjoy. I don’t have ads on my site, and honestly I probably lose money on hosting costs. I have had some success on hacker news and Reddit which has been a pleasant surprise - but Cassandra Capital is just me writing about what I enjoy writing about.
https://www.amazon.com/dp/1793927758/ref=cm_sw_r_cp_awdb_t1_...
e.g. I'd buy it in audiobook form, my wife and I enjoy this topic. Have you considered it, and if so, what's involved?
So, less secret cabal, and more just writing to an audience. Remember, any given subreddit is just a community and not representative of the internet or reality at large.
When people manage their private funds they reduce their exposure to risky investments like stocks as they reach retirement age. Public pension funds should behave identically and eat a small yield loss in exchange for lower risk.
Assumptions that were made about the level of yield that could be achieved safely before the crisis simply don't apply today.
If you do a search you'll find a number of people arguing that having a 60/40 portfolio may not be enough post-retirement, and that if you want to not run out of money, then something like a 60/30 or 80/20 equity-bond mix may be necessary.
In the past bond rates were often >4%: good luck finding that (unless you want to buy Brazil, Mexico, or Russia bonds).
Unless, of course, you are referring to the macrotrend in which we are all swallowed up by the sun.
There are a lot of machinists and truckers out there who are already feeling this pinch.
The worlds looming financial woes are entirely of our own making. We're not running out low on resources. We're just distributing them very inefficiently.
This is a disaster that’s been a long time coming but it’s also been clearly signposted the entire time. Actuaries have known this for a long time.
Every economic system and model depends on future expansion of both capital and human resources. There are no theories of at scale planning for a future has less stuff and fewer people and no growth or even shrinkage.
The "can't afford" BS is the mantra of private capital, which does a great job of funding the .1% and an awful job of funding the 99.9%, which is what pensions do.
The fact that expected benefits may not be fully achieved due to, I don't know, inability to predict the future has been used as a straw man to dismantle what have been in historical terms far and away the most successful at scale future funding schemes. The repeated failures of unplanned models get lost down the memory hole.
We need a new term to complement "Ponzi scheme" to capture the mass reality distortion that index funds make everyone their own best investment manager.
There are plausible reasons to decrease populations in regions or entire countries. With climate change getting more serious, we'll soon start having to move populations away from flood prone areas or areas with increasing desertification. Many of those towns and cities started their own infrastructure projects paid with bonds that assume a certain population, and thus tax base, growth.
Younger generations, for several reasons from despair about ecological future to high costs of living to stagnant wages, are opting to not have children. Other countries, like Japan, have struggled economically because of declining birth rates.
If we (the US) had a more open borders policy with an easier path to citizenship, we could use immigrants to boulster our population and tax base.
With migrating and shrinking populations, I can't think of other economic instruments to pay for local infrastructure projects that have routinely been paid with long-term municipal bonds.
There is zero incentive for younger people to engage in that if not for complete dependence within such a system.
If that is the outlook, no economic instrument can be the solution since the way the economy is driven is the problem itself.
If you generalize your strategy to a global level you will end up in the exact same spot.
Sustained economic growth is a product of the Industrial Revolution so this is only true if you ignore almost all of human history.
> There are no theories of at scale planning for a future has less stuff and fewer people and no growth or even shrinkage.
On at least one interpretation this is how total war usually works in industrial societies. The Roman Empire abandoned long settled territory full of Roman citizens on more than one occasion, Britain, Dacia, so dealing with economic contraction is also far from unknown historically, even for well developed states with a literate culture and bureaucracy.
> The "can't afford" BS is the mantra of private capital, which does a great job of funding the .1% and an awful job of funding the 99.9%, which is what pensions do.
You radically underestimate the proportion of the population who would be basically ok in a world without defined benefit pensions or one where they don’t exist at all. The professional classes would be just fine if they had to arrange their own retirements instead of having financial intermediaries do it.
> The fact that expected benefits may not be fully achieved due to, I don't know, inability to predict the future has been used as a straw man to dismantle what have been in historical terms far and away the most successful at scale future funding schemes.
Nothing has been dismantled yet. I’m not aware of a single developed country without a non-contributory old age pension. More generally people I respect, like Noel Maurer, have said that the US’ Social Security system can be made sound with quite feasible increases in taxation. This does not apply, to the best of my knowledge to the large public sector pensions though. They were based on assumptions of economic and population growth that just don’t hold and without politically impossible levels of taxation they’re doomed.
> The repeated failures of unplanned models get lost down the memory hole.
Well no one planned those unplanned models. Extremely generous public sector pensions have been known to be actuarially unsound for decades. The planners know very well a reckoning is coming. They just hope it doesn’t happen while they’re in office.
> We need a new term to complement "Ponzi scheme" to capture the mass reality distortion that index funds make everyone their own best investment manager.
At least investment funds don’t saddle the taxpayer with obligations run up by long gone politicians. There are well run government pension systems, or there’s one, Singapore’s.
I am not sure why you discount real estate. You might not think it is a good investment, but it is still the idividual managing their retirement. Besides, in this context "real estate" mostly means owning your own home. The main benifit here is not the paper value of the house, but the imputed rent. If this value goes down, by definition, cost of living went down a corresponding amount. (There is admitadly the risk that you want to move, and the local market tanked).
This is not true. There is a negative correlation between economic growth and population growth, e.g. economic growth slows as population grows.
https://www.theigc.org/blog/is-population-growth-good-or-bad...
The absence of a pension is a Ponzi scheme, because the only source of funds for people no longer working is that of people currently working.
The "pensions were supposed to" should be reframed- pensions "would have fully taken care of people...." had they been properly defended rather than attacked and dismantled.
That pensions still exist, that they have been funded even to 35%, after the unrelenting assault on them by private capital, is an incredible achievement. The equivalent funding level for alternatives to pensions is something like 10%- taking real estate into consideration. Without real estate, the funding level is probably less than 1%.
It is a difficult, difficult problem to organize humans to fund the future at scale. Pensions were/are an incredible success, even if that success is partial and insufficient.
[1] https://www.weforum.org/agenda/2015/01/what-is-the-life-expe...
And attributing the failure of pensions to meet their obligations to ‘attacks’ and lack of ‘defense’ isn’t a well formed opinion or argument, yet you dole out plenty of shade on others’.
Instead we really need to invest more in productivity gains for the world's bottom 90%.
This assumes distribution can have no positive impact on output, which is certainly not an established fact.
We know this isn’t the case.
https://ips-dc.org/wall_street_bonuses_and_the_minimum_wage/
> All those dollars low-wage workers spend create an economic ripple effect. Every extra dollar going into the pockets of low-wage workers, standard economic multiplier models tell us, adds about $1.21 to the national economy. Every extra dollar going into the pockets of a high-income American, by contrast, only adds about 39 cents to the GDP.
Also, while I agree with the premise that it's better to increase the minimum wage could you explain why folks investing their bonuses in the stock market and therefore directing their capital towards productive companies is worse than consumers spending their money directly?
Sure it is. When the last round of tax cuts were configured, deliberate choices were made that affected different income brackets in different ways. The levers can be tweaked to direct the benefits to the poor, the wealthy, the middle class, etc.
> could you explain why folks investing their bonuses in the stock market and therefore directing their capital towards productive companies is worse than consumers spending their money directly?
I already did, with a linked source for further details.
the truth is the the public employee pension system has been far to generous for far too long and many are counting on a bailout from Washington to keep the largess going. I will post it over and over, Illinois is a prime example of what is wrong in the public employee pension system[1]. When you have twenty three thousand retirees pulling in 100,000 per year there is a problem. Chicago is in dire situation too from both too much largess and simply kicking the debt bomb down the road [2]
There is not enough wealth in the US to tax to support this level of largess and it goes by unnoticed because it was designed to not be see by the public.
If the only way to fix the pension system is for them to implode it is a far better solution than to tax our way out of it because the behavior has to change.
Tens of millions of Americans are counting on their 401k retirements and such and the only true source of wealth that can be taken to fix the pension systems of public employees is to go after those 401k funds. There aren't enough billionaires to take all the money from
[1] https://www.forbes.com/sites/adamandrzejewski/2018/10/26/ill...
[2] https://www.forbes.com/sites/ebauer/2019/01/10/the-problem-w...
That’s only true if you believe in the fairy tale that Social Security and Medicare taxes (around 15% between you and your employer) are held in a separate account and the money doesn’t go into the general fund with all other tax revenues.
The top 1% own 40% of all wealth in America. There's not only enough money, this is by far the fairest way to square this circle. The vast majority of that wealth is not earned.
I favor large inflation, which bankrupts the trillionaire while the working Joe keeps earning 'new money' and does ok.
Well that's hilarious. If the tax system in the US was truly progressive then it wouldn't have so many billionaires.
source: https://www.bloomberg.com/news/articles/2018-10-14/top-3-of-...
Does it include yourself?
Do people actually invest in these bonds? Why would they not put it in a safer, positive returning, investment like US bonds?
But if you have 100M in [edit: $your_native_currency], you aren't going to put it in a retail bank account, you're not going to put it in your mattress, and so you have only a few options:
1. Stocks/derivatives: If you were holding cash already, you're probably not comfortable with the risk profile of any of this stuff
2. Bonds - this exposes you to the slight negative interest rate
3. Corporate bank account - you might be able to avoid a negative interest rate here as well, but only because you're passing the buck (literally) to the bank, who then has to pick 1 or 2.
4. Actually use the money yourself, in your business.
The whole point of the NIRP (negative interest rate policy) is to push people to pick 3 or 4, and if 3, then for the banks to pick 1 or 4.
I just reread your question, and realized I didn't fully answer it. Investing in foreign bonds exposes you to exchange rate risk. I was sorta hand-waving it into 1 since it's basically like doing both bonds and forex. Not very appealing if your risk appetite is "preferably cash or govt bonds".
I feel obligated to include a disclaimer that this isn't investment advice and that monetary policy is immensely complicated and this is just the high-level thinking of the point of NIRPs.
My current worry is the holding company - e.g. what if Merrill Lynch goes bankrupt? There is a very small amount that is FDIC insured but the rest could go poof.
A mattress might work better for this use case, but I figure if it comes down to that we'll have bigger problems.
On the brokerage side, SIPC insures securities in much the same way FDIC insures deposits, but the amount insured is significantly higher, though I don't know it off the top of my head. And beyond that, regulations require brokerages to hold client assets separately from the broker's assets, and this is audited. So for the most part, SIPC is mainly overseeing the transfer of securities from a dying brokerage to somewhere else.
So, for the most part, the risk you describe is more about inconvenience than actual material loss.
The Federal Reserve bank sets the Federal Funds rate. This is their "target rate" they will try to hit. They accomplish this by using their position as the central bank to "print" (not literally, it's a credit system, I'm hand-waving) money to bid on bonds. In the same way that lots of investors clamoring to lock-in rates on long bonds can bid their yield down, the federal reserve using their funny money to bid on treasuries also bids their yield down. And when the fed wants the rates below zero, they bid them to below zero. These are called "Open Market Operations".
To be fair, there is no economic law that says this has to be true. It is just true, today, in countries like the USA. It's very possible we reach a point where central banks work together with the government to directly purchase and monetize government debt. It seems absurd today, but so did negative interest rates 20 years ago.
on edit: punctuation
Absolutely
> Why would they not put it in a safer, positive returning, investment like US bonds?
At a minimum you are exposed to the exchange rate with your domestic currency, and FX can be volatile - developed market currencies can easily move a few percent in one week - compare that to the Treasury yield of c.2%/year. PLus you are exposed to US macro-environment and interest rates which may be totally unrelated or risk-additive with respect to your investment strategy.
Even +ve yielding bonds are losing money in real terms. People buy german bunds and swiss govvies at negative yields as they are a save haven.
The root cause of all economic problems are man made. Lets fix the root cause because its totally in our control.
Currently, when deflation happens, the rich don't suffer losses immediately. Instead they fire their works and reduce investments. So the poor are on the streets or have to suffer first. The rich may or may not lose later (they don't lose because by then they get bailed out or the tide turns).
If we're truly going to use currency as a medium of exchange then we have no choice but to let the rich suffer, perhaps they suffer first.
Source: actual real life economist.
I don’t know what you define as very short term, but emergency funds should be in cash, so should money set aside that is meant to be spent in a few months.
Think saving cash(or putting in bonds) for a down payment.
Please end this discussion
Why do you think the same about any other asset that relies on inflationary monetary system?
So you certainly can't blanket statement this one. Furthermore, every major country passed in exactly the same year(2014) that pension funds can now cut benefits to stay solvent. This was done by Obama, Harper in Canada, and really no political partisanship at all; right wing and left wing did this across the high income countries. http://www.pensionrights.org/issues/legislation/summary-pens...
So fundamentally the author is wrong. Pension funds arent going to be destroyed. The pensioners are the ones who will be taking cuts. Grandpa is going back to work; even though he still has a pension.
I'm not sure that qualifies as the article being “wrong” so much as not being completely clear on why it's thesis is correct.
https://www.dictionary.com/browse/destroyed
The article I read is arguing that Pension funds will no longer exist. Pension funds wont be going anywhere.
(Though, I would argue, it would also literally destroy pension funds, but as a more distant effect of causing them to be perceived as not delivering value, but that's entirely outside the focus.)
There was no hyperbole there. It was at best clickbait. I would accept clickbait; but my default understanding on that article is that they are proposing the end of pensions.
>Though, I would argue, it would also literally destroy pension funds, but as a more distant effect of causing them to be perceived as not delivering value, but that's entirely outside the focus.)
Pensions are pyramid schemes. It's a valid argument to be made. The author for sure is going down that route.
Not really. I think a fairly typical pension plan you can withdraw funds from only if you leave employment covered by it, and the refund is typically of your contributions plus interest (not employer contributions made on your behalf.)
Note that this (and the article) uses “pension” narrowly to mean “defined benefit retirement plan”, not broadly to mean “retirement plan, including defined contribution plans as well as defined benefit”. Defined contribution plans can usually be withdrawn from at a penalty more freely.
Pension funds are intended to be large pools of money invested wisely, ensuring that retirees from a certain employer can be paid what they were promised.
Changing interest rates would affect how the fund managers invested the money (in theory). It's unlikely that pension fund managers can recession-proof their investments, partly because recessions by definition are harmful to almost everyone who is holding securities when they begin.
I find this language and the agenda of fear to be concerning.
In a way they're worse than average kings/queens from history.
https://assets.weforum.org/editor/large_P5jdSz3P6OAUa75Orq2L...
There are a lot of good reasons to hate on the ruthless capitalist business class, but don't pretend that actual monarchs were somehow more benevolent. There were a lot of revolutions and civil wars in history -- for a reason.
USA is much more freindly to low skill immigration too, which would reduce the need for raising wages for these jobs.
- Pensions are already "squeezed" (people get less pension than they originally were told they would)
- The age you can retire was alway 65, now it's 67 and growing with life expectancy (every year of life expectancy = 8 months later retirement)
- Pension funds want/lobby for more lenient rules so they need to have less cash on hand...not sure if they'll get it
https://tweakers.net/ext/f/YflHE563fficH8f0MAv7zIFj/full.jpg
It's similar to how I see social security in the us not being adequately funded. We only need to increase funding a little bit to make it solvent. We could do some easy things like increase the cap on income that gets taxed (s.s. has max payment amount, and the tax that pays for it is a percentage of income but there's a cap on how much income they tax, so just increase that income tax cap a bit).
One of the fundamental problems for all pension funds, public and private, is that with longer life expectancy comes markedly increased length of pension receipt. Germany has seen a doubling from about 10 to 20 years of average pension receipt since WWII.
CalPERS in particular has become subject to multiple mini-scandals recently. The first of which is the competency of their latest CEO and the thoroughness of their hiring practices (1). Even the most charitable interpretation of her resume and skillset would arrive at the conclusion that Marcie Frost is a figurehead/cheerleader type CEO at best. Combine that with the recent announcement of Yu Ben Meng's return to CalPERS as CIO and there is certainly room for concern (2). Meng left CalPERS in 2015 to serve as deputy chief investment officer of China's $3.2 trillion State Administration of Foreign Exchange. We are now facing a situation where the nation's largest public pension is managed by a man considered so trustworthy by the country we are currently waging a trade war against that they placed him in charge of their largest capital fund. Even if everything is financially and legally above board, this kind of tone-deafanagemeny by the CalPERS board does not induce great confidence in their leadership or stewardship abilities.
(1): https://www.nakedcapitalism.com/2018/08/marcie-frosts-shoddy...
(2): https://www.pionline.com/article/20190204/PRINT/190209951/ne...
I misunderstood