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Stingy News: Pensions

QE is eating your pension
03/08/12 Pensions
"Gilt yields are often used as a proxy for both investors' future earnings and inflation, exacerbating shortfall estimates. Ms Segars argued that, as a result, companies whose pension schemes already had large shortfalls could be forced to make even bigger contributions. "That diverts money away from jobs and investment and will lead to further closures of final salary pensions in the private sector," she said."

Raiding the coffers
02/28/12 Pensions
"The New York Times has an excellent piece today on how state pension plans are borrowing from their pension plans to fund their own pension contributions. This Alice-in-wonderland approach is a salutary reminder of the dangers of funded pension plans they create a pot of money that politicians are tempted to use for their own devices."

Pension forecasts are way too sunny
02/03/12 Pensions
"Consider a corporate plan projecting a long-term average annual rate of return of 8% and holding 50% stocks and 50% bonds. With the Barclays Capital U.S. Aggregate bond index yielding around 2.2%, a 50% allocation to bonds contributes 1.1% annually to the portfolio's overall return. Stocks have to make up the remaining 6.9% for the entire portfolio to hit the 8% target. If stocks gain 10% annually, a 50% allocation to them will provide 5% of return, not the 6.9% needed. For this hypothetical portfolio to return 8%, stocks need to gain an average of 13.8%. That would be nice - and unlikely. Over the past 10 and 20 years, respectively, the Dow Jones U.S. Total Stock Market Index has returned 3.9% and 8% annually."

The Little State With The Big Mess
10/24/11 Pensions
"In most places, as in Rhode Island, the big issue is pensions. By conventional measures, state and local pensions nationwide now face a combined shortfall of about $3 trillion. Officials argue that, by their accounting, the total is far less. But with pensions, hope often triumphs over experience. Until this year, Rhode Island calculated its pension numbers by assuming that its various funds would post an average annual return on their investments of 8.25 percent the real number for the last decade is about 2.4 percent."

A trillion here, $500 billion there
10/15/11 Pensions
"In 2009 Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx, then at the University of Chicago's Booth School of Business, estimated that the deficit of American state and local-government pension plans was $3.1 trillion. Mr Rauh reckons that the deficit is now $4.4 trillion. In other words, a cool $1.3 trillion has been added in two years."

The half-a-trillion hole
10/08/11 Pensions
"However US local government funds continue to use the assumed rate of return to discount their liabilities, even as 8% looks more and more chimerical. I have struggled to convince readers of the madness of this approach, so I will try to channel Warren Buffett (in spite of having one-tenth of his brains and one-thousandth of his intellectual credibility). If a promise to make a series of future payments isn't a debt, what is it? If a debt shouldn't be recorded on the balance sheet at cost, how should it be recorded?"

Get ready to pay billions for hydro pensions
09/02/11 Pensions
"Defenders of these very generous pensions always claim that these employees contribute their fair share into the pension plans, and so deserve them. As taxpayers, we would normally think a 50-50 split of contributions would be fair, with employees contributing 50% and taxpayers matching it. But over the past five years alone, taxpayers have pumped $1.3-billion into the plan, while employees have contributed only $368-million. Not so fair and sure to create serious pension tensions when taxpayers find out what is really happening in these pension Ponzi schemes."

Depleted pension fund rattles Rhode Island
07/13/11 Pensions
"The city, just north of Providence, is small and poor, but over the years it has promised police officers and firefighters retirement benefits like those offered in big, rich states like California and New York. These uniformed workers can retire after just 20 years of service, receive free health care in retirement, and qualify for full disability pensions when only partly disabled. Just over one square mile, Central Falls has a tightly packed population, filled mostly with immigrant families, that struggles on a median household income of less than $33,520 a year, according to the Census Bureau's 2005-9 American Community Survey. The typical single-family house, after a recent revaluation, is worth about $130,000. It is hard to see how anyone thought such an impoverished tax base could come up with an additional $80 million for retirement benefits. If the city were contributing the recommended amount to the plan each year, it would take 57 percent of local property tax revenue."

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