Items tagged with pensions:
News & Updates:
Philadelphia’s city pension plan needs reform: even before the new contracts, actuaries predicted two years ago that if the city obtained its assumed rate of return — 7.85 percent at the time — it would not reach its pension funding goal until 2031.
“The consensus estimate is that stock and bond markets are unlikely to earn the assumed 7.7 percent return, so the funding will be much below what is projected,” said Olivia S. Mitchell, executive director of the Pension Research Council at the University of Pennsylvania.
Faculty Affiliate Olivia Mitchell comments on the juxtaposition of General Electric’s $45 billion in stock buybacks in recent years to their growing pension liabilities.
“It’s a clear tension. Buybacks clearly use assets available not to fund the pension promise but to make shareholders happy.”
Pennsylvania Governor Tom Wolf signed legislation that would restructure future public employee’s pension plans to be solvent. The plan does not fix the current shortfall, however, as it only affects future employees.
Faculty Affiliate Olivia Mitchell commented, “The fact that they have to reform for all future hires means that, eventually, and very eventually, there will be some relief. However, the current defined benefit plan is underfunded and is not fixed by that reform.”
It is not hyperbole to blame Philadelphia’s underfunded pensions for the city’s high taxes, dirty sidewalks, potholed-filled streets, and struggling schools. Every dollar the city has to contribute to fill the pension gap is a dollar that could have gone towards fixing one of those pressing problems.
Last year Philadelphia’s pension fund floundered in the markets, taking a $149 million loss in the fiscal year that ended June 30th, 2016. That marked a 3.17 percent decline that followed the previous fiscal year’s anemic 0.29 percent return.
“Most public pension managers hope they will make a higher return by investing in riskier assets,” said Faculty Affiliate Olivia Mitchell. “But what they are not acknowledging up front is that risky assets are risky, and you will lose 20 percent sometime.”
With stocks, and even corporate bonds, “some of the time you flop, and sometimes you win big,” she said. “Pensions should go into much safer assets.”
Pensions are, in a sense, a necessary by-product of a rich economy. But what will it take to sell the idea to the rural poor? Especially when their income (never particularly substantial) is seasonal, increasing at harvest time and with demand in the cities for construction-related labor. What are the inducements that can convince them to invest for a future forced upon them by the changing social structure?
Faculty Affiliate Olivia S. Mitchell set out to answer these questions in a research paper titled, “Assessing the Demand for Micropensions among India’s Poor.”