Pension Fund Definition: Pension Funds Getting Hammered

Pension Fund Definition?

Scranton pension funds take a big hit as the coronavirus rocks global economy

The city’s pension fund plummeted in recent weeks under a global economy rocked by the coronavirus pandemic, officials said.

The value of the city’s composite pension fund investments fell from $106.7 million in January to $90.5 million as of Tuesday, pension board members said during a meeting Wednesday.

The drop is a cause for concern but not panic, financial adviser Alexander Goldsmith of PFM Asset Management told the pension board.

However, if larger economic woes continue for three or four quarters of the year, the overall stress could plunge the U.S. into a deeper crisis and markets may not be able to recover by the end of the year, Goldsmith said.

“Right now, we don’t see that as being the case,” Goldsmith said. “We see this as being really more of a two-quarter, U-shaped recovery. It’s not going to snap back overnight.” Full Story

Pension fund definition is not the Issue, Pension fund destruction is

The coronavirus crisis is still unfolding, but it’s not too soon to think about the lasting financial impact and how to limit the fallout. One major financial crisis that may hit later this year or early in 2021 is the ever-looming collapse in state and local employee pension funds. Although the problem has been growing for decades, the virus may have been the event that pushed it over the edge.

Declines in the financial markets may have cost the funds as much as $1 trillion in assets, or about 25% of their total, according to Moody’s Investors Service. That would bring the aggregate funding ratio—the value of assets divided by the actuarial value of liabilities—from 52% based on the last report by the Census Bureau down to perhaps 37%. Markets may recover, of course, but they may not.

The latest aggregate numbers we have are from 2017, and for most individual funds data is available only as of mid-2018. Asset returns are usually smoothed so it could be four or five years until the full effect of the virus is reported officially.

But it’s not aggregate numbers or official reports that will trigger a crisis. It’s the big funds in the worst shape. My back-of-the-envelope calculations suggest Connecticut could be looking at a 28% funded percentage if the numbers were available now, Kentucky 25%, New Jersey 24% and Illinois 20%.

Those figures rely on optimistic assumptions about healthcare cost increases and discount rates; the true numbers are probably worse. The important statistic is more objective: how many years’ benefits do the pension assets represent? That could be no more than about four years in Illinois if true numbers were public today, five in New Jersey and Kentucky, six in Connecticut.

All benefits for active employees, plus all benefits for everyone in the near future, will have to come from employee or state contributions. But states will be strapped for cash and looking to cut contributions, not raise them. Employees will be unwilling to contribute more since there’s little likelihood they’ll ever see that money again, especially as post-2008 reforms have denied many of them the gold-plated benefits that employees with more seniority enjoy. Full Story

Game Plan

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