According to a new study by Stanford Research no US city or state is running a balanced budget for their pension schemes and the collective funding deficit–of just US public pensions–grew to $4 trillion in fiscal 2016. The cause of this has been erroneous and negligent financial planning which is targeting average annual returns of 7%, more than twice the actual average return generated of 2.9% in 2015. See US faces crisis as pension funding hole hit $3.85 trillion in 2016:
Big pension deficits have already contributed to the bankruptcy of several US cities, including Detroit. Puerto Rico, the US territory, this month declared a form of bankruptcy after amassing debt and pension obligations of $123bn.
The answer? Not taking on more risk and outrageous fees to miracle-promising banks and hedge funds, but rather basic math and restructuring: reduced benefits and increased contributions. Time to face facts. The longer this goes on unchecked, the greater the cost to taxpayers, the economy and our social fabric.
Mr Rauh said politicians will have to make unpopular decisions if they are to ward off future financial problems. This could include cutting pension benefits or raising taxes in order to contribute larger sums to public retirement plans.
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