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Over the last decade, many of the largest public employee pension systems in the U.S. have seen rates of return far below the 8% considered necessary for meeting obligations, Bloomberg reports. If that figure does not improve, dramatically, states will be unable to fulfil their existing obligations to civil servant retirees.To give you some idea of how far off the rates of return are, consider this: the state of Washington’s pension returns were the best in the country, at 3.92% over the last decade.
The surprisingly low returns are attributable, Bloomberg notes, to “extraordinary reverses” of the last decade, including the dot-com bust and the 2008 financial crisis. These “reverses” have forced some states to revise their expectations downward, thereby further widening funding gaps and compelling lawmakers to spend more (and more) annual tax revenue to stabilise the system.
The earnings shortfalls and consequent state deficits have caused many states and municipalities to cut back on promised benefits, raise eligibility standards, and increase employee contributions.
Things do seem to be improving, however.
Some state pension funds posted record-high returns for the fiscal year that ended June 30th. The California Public Employees’ Retirement System, for instance, gained 20.7% for the year. And despite the diminished returns of the last decade, average pension fund returns over the last 30 years remain well above the necessary 8%.
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