Both Barack Obama and Mitt Romney have raised concerns about underfunded pension programs.
But, it’s really a state and municipal problem, according to Pension & Investment Magazine.
Poor management has led many pension systems seeking for bailouts, according to the editorial published in P&I Magazine. State pensions have reached deficit levels of $767 billion in the U.S. The largest 100 corporate-defined pensions have hit $454 billion in unfunded liabilities.
“States and municipalities have to rectify their own underfunding,” the editorialist said in the magazine article. “The blame for the underfunding of retirement systems, on the public level, lies generally with legislatures, which have raised pension benefits to unaffordable levels while failing to contribute actuarially required amounts to properly fund obligations. They've also kept assumed return rates high, making plans appear better funded than they are.”
Congress should work towards healthy risk management of state and municipal pension plans by reviving safeguards like the Public Employee Pensions Transparency Act of 2010, according to P&I Magazine’s editorial.
“Pension plan executives cannot invest their way out of the underfunding mess, but until their sponsors improve funding, they will have to rely on better risk management of their investments to keep funding levels from getting worse,” P&I said in its editorial. “Such moves would reduce the need for bailouts from the federal government.”
Utah Retirement Systems, the government organization in charge of the state’s public pension, should consider a more conservative rate of return, according to a Deseret News column by retirement and wealth manager Sean P. Lee.
“There is a new normal when it comes to investing that is not being accounted for in the Utah Retirement Systems,” Lee said in the column. “Moderate portfolios these days are hoping for an annual gain of 5 to 7 percent. The likeliness that the URS will consistently earn 7.5 percent on a conservatively managed portfolio, as anticipated by its fund managers, is highly unlikely.”
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Local Utah governments can expect to pay higher fees to cover pension costs if the Utah Retirement Systems’ investments don’t earn at least 7.5 percent each year, according to a recent article in the Deseret News.
The Utah Retirement Systems, which runs the combined pensions for all cities with employees earning retirement benefits, collects fees from cities and towns based on an assumed 7.5 percent return on investments, said Robert Newman, the director of the Utah Retirement Systems. If investments fall below the 7.5 percent growth rate, then the Retirement Systems will increase fees, he said. The URS covers roughly 104,000 pension holders.