Financial Times: US public pension funds face big losses

[marmar]

US public pension funds face big losses
By Deborah Brewster in New York

Published: October 26 2008 22:32 | Last updated: October 26 2008 22:32


Public pension funds in US states are facing their worst year of losses in history, exacerbating existing funding shortfalls and putting pressure on state governments to shore them up.

In the nine months to the end of September, the average state pension fund lost 14.8 per cent, according to Northern Trust, a fund company. The loss has grown since, as financial markets slumped further in October. The previous highest loss for state funds was 7.9 per cent for the full year in 2002.

California’s Calpers, the US’s biggest pension fund, last week reported a loss of 20 per cent of its assets, or more than $40bn, between July 1 and October 20 this year.

State and local pension funds comprise a patchwork of 2,700 funds that manage $1,400bn on behalf of 21m employees, including teachers, firefighters and other municipal workers.

About 40 per cent are underfunded, meaning that they would not be able to pay the future pensions that employees have been promised. State governments have lifted pension benefits – a move that is politically popular – but have often failed to put in more money to pay for them.

Richard Daley, mayor of Chicago, this year convened a taskforce to address the shortfalls in Illinois funds. For example, funding for the Police Fund has fallen to less than 50 per cent.

A Chicago police officer told the Financial Times: “We are risking our lives here every day, but we have no idea if the pension we have been guaranteed will be there when we retire.” The officer called on the city to start contributing more to the fund. .......(more)

The complete piece is at: http://www.ft.com/cms/s/0/29c8e0c8-a3a0-11dd-942c-000077b07658.html

[Bozita]

1. “This is going to be a vicious cycle of pressure on pension funds, ..." -- killer line

from the article:

“This is going to be a vicious cycle of pressure on pension funds,” said Greg Pai, managing director of Paradigm, a money manager. “They have previously looked to state and corporate subsidies, but  . . .  have lower tax revenue and are under pressure to cut costs.”

[truedelphi]

2. Having just watched the "60 Minutes" segment last night focusing on the de-regulation

Of the financial industry, and although I am grateful to "60 Mintues" for being one of the only TV sources reporting on what is going on, here is what upset me the most.

Among the many statements that 60 Minutes offered, the notion that the industry was de-regulated, and that the experts AT THE TOP came up with these nonsensical things like "Credit Default Swaps" without any one of them considering the consequences. That NO ONE was bothering to think about what would happen if the housing market that was being gambled against did indeed fail - and yet there is not a single report of anyone in the Government or even at Sixty Minutes being upset over this lack of underwriting and lack of cocnern. SO it is basically okay to run an entire nation's economy based on hype??

In the late nineties, Greenspan was pounding the podium asking for de-regulation. And yet we should believe that even he didn't bother to think about what the industry was doing?

The people AT THE TOP who made these decisions had a duty to figure out all the scenarios. The lowliest underwriting systems analyst at the lowliest insurance company figures out what happens to the overall system if things do not go as wished. But we are led to believe that it is perfectly reasonable that the Captains of industry did not ONCE stop to consider the consequences if things in the housing market went badly. Is that nonchalence at such a catastrophe even possible?