The Next Catastrophe: Think Fannie Mae and Freddie Mac were a politicized financial disaster? Just wait until pension funds implode. - Reason Magazine: "State, local, and private pension plans covering millions of government employees and union workers with “defined benefit” accounts are teetering on the brink of implosion, victims of both a sinking stock market and investment strategies influenced by political considerations.
From January to October 2008, defined benefit funds—those promising a predetermined amount of retirement money to the payee—averaged losses of 26 percent, according to Northern Trust Investment Risk and Analytical Services, making it the worst year on record for corporate and public pension funds. The largest public pension fund in the United States, the California Public Employees Retirement Security System (CalPERS), lost a staggering 20 percent of its value in just three months last year. In May 2008, Vallejo, California, became the largest city in the state ever to file for Chapter 9 bankruptcy, thanks largely to unmanageable pension obligations. The situation in San Diego looks worryingly similar. And corporations with defined benefit plans are seeking relief in Washington as part of a bailout season that shows no sign of slowing down."
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Oh, why worry. Let's just wait until it happens, like we do with everything else.
2 comments:
I/m waiting to hear about the smaller university endowments. However, both the endowments and the pension funds are in for the long term.
What we haven't heard much on are the numbers of retirees who remained with substantial nest eggs in stocks.
Small college endowments must be in terrible shape. The big universities have taken a big hit, but they have enough fat to ride out a bad year. Many of the small liberal arts colleges--such as Albright, where I used to teach--depend heavily on tuition for their payroll, and if they have a bad investment year or two, as they did in the early 90s, they have to fire faculty. Albright fired 15 of their 90 or so faculty in 1993-4. If this recession is worse and longer, it will indeed mean hard times.
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