In a new Orange County Register column, I write that when it comes to public sector pensions, policymakers ignore the “new normal” in the marketplace at their peril, as it threatens rising costs to taxpayers, declining pension solvency, and diminished retirement security. Here’s an excerpt:
In many aspects of our financial lives we’re cautioned that “past performance is no guarantee of future results.” Oddly though, in the world of public sector pensions—among the biggest institutional investors in global markets—politicians regularly ignore that mantra. Lawmakers pretend they can count on big investment returns every year, while disregarding warning signs, mounting debts and increasingly unsustainable pension systems.
We’re seeing the latest pension fund returns come in, and almost uniformly, it was a terrible year for states—and thus taxpayers. The California Public Employees’ Retirement System, the largest U.S. public pension fund, logged a paltry annual return of 0.6 percent.
Pension systems saw big investment returns for a few years as the stock market rose and recovered from the 2008 crash. CalPERS got astronomical returns of 13.2 percent in 2013 and 18.4 percent in 2014, but those past results weren’t guaranteed to continue. And they haven’t.