Plenty of Trouble for Pensions
Researchers at Boston College’s Center for Retirement Research analyzed the current status of State and Local government defined-benefit (i.e., “traditional”) pension plans across the nation.
What they found was a bit disturbing. And for any of you that have ever paid any attention to this issue, this is not anything new.
Despite assuming that the plans would earn an average return of 7.6% per year, the 170 plans reviewed by analysts actually had an average return of just 0.6% in 2016.
This has dropped the average plan funding percentage to just 67.9%. This means that the average plan is 32+% underfunded. This means the benefits paid out to employees retiring will be nearly a third less than planned for.
Given the underperformance with regard to investments, there remain only two viable options—increasing contributions (from governments, their workers, and/or taxpayers), or reducing pension benefits, or both.
Take a close look at the slope of the graph. Is it trending up or trending down?
It’s heading down and that is not a good direction for the future retirement incomes of the employees covered by the pensions.
This is just another case of people trying to predict the future and then being surprised when it doesn’t come true.