US. Blame The Fed For The Coming Pension Fund Crisis
- Most public and private pensions in the United States are underfunded, many severely so.
- Back when interest rates floated in a historically normal range, there was not a serious issue of pension underfunding.
- Ultra-low interest rates have pushed pensions into riskier assets such as corporate equities and bonds.
- Pension demand for corporate bonds has facilitated a surge of debt-funded buybacks.
- What happens when pensions are no longer able to keep up their massive procurement of corporate debt?
American pensions are in trouble.
A Wilshire Consulting Report from 2017 shows that 97% of the 103 state pension funds that report actuarial values were underfunded. The “funded ratio” — that is, the percentage of liabilities (promised benefits) covered by current assets (funds available for benefit payments) — fell by 20% from 2006 to 2016.
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