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Saturday, September 18, 2010

Pension Gaps Loom Larger

Many of America's largest pension funds are sticking to expectations of fat returns on their investments even after a decade of paltry gains, which could leave U.S. retirement plans facing an even deeper funding hole and taxpayers on the hook for huge additional contributions.  It would seem that overstating the expectations of returns keeps the gap smaller, if the pensions were to actually reduce their forecasts it would force the gap, to be made up, ever larger.  Therefore, it pays for a pension fund to overstate ensuring this house of cards can continue to statnd.  Some pension funds are ratcheting down their figures, but not enough (usually by half a percent).  From 2005 to 2009 returns were undershot by 50% of expectations, the coming years do not hold much hope for higher returns either.  Reasons are that money in the stock market are not returning as much as anticipated (due to a poorly performing market) and bonds have been held down at a very low rate of return on the fixed income side.  Pensions public and private are already in crisis, this "eyes closed" attitude to reality may cause larger problems for pension funds as reality of the market returns going forward become more dismal and may prove to be the next joker inline for a bailout.  The gap on returns would have to see considerably higher interest rates on fixed income assets and a strong bull market to make up the gap over a long period of time (as their premise of return was based on a strong bull market continuing).  Who knows what is to become of our markets as American investors continue to feel burned by manipulation in the markets and an unleveled playing field vs. the Market Makers.  We may experience a sideways movement in the markets for some time until investor confidence returns, which could potentially widen the gap for pension funds. [ Read more ... ]

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