Submitted by Taps Coogan on the 11th of September 2018 to The Sounding Line.
Former Pension Benefit Guaranty Corporation Director and Kiski Group Managing Director Charles Millard recently spoke with CNBC’s Rick Santelli about the ongoing pension under-funding crisis, which has now reached nearly $4 trillion in the US, equivalent in size to Germany’s entire annual GDP. Mr. Millard emphasizes how continued under-funding of public pensions is, in effect, an obligation to raise taxes in the future.
“The fact of the matter is that people in states and throughout the country have not made their contributions for years and years and years. So when you make a promise and you don’t fund it, you don’t put the assets in there, the liabilities continue to grow. But if you haven’t put the assets in, the assets aren’t growing. And around 2010, people were putting in around 80% of what they were supposed to put in. Now, they are putting in about 90%. That sounds a lot better but that’s still a 10% hole across the board for whether or not states or cities are actually making the contributions they are supposed to make.”
“As a market person, what really hits me, Charles, is that they’ve given up quite a bit of return in the equity markets in the last 20 months, and even though they’ve upped the percentage, we have no idea what may be ahead of us with regards to markets and investments and returns… How can states and local managers of this capital try to protect themselves and diversify, yet accumulate faster?”
“I think the really important point to make in terms of investments, Rick, is that most pensions have returned reasonably well. If you took the average return of a public pension over the last 30 years, it’s around 9%. So the issue in pension under-funding is… you got to put (money) in in the first place. If you don’t put it in you are not going to fill the hole… Moody’s makes the point that if you are not funding your pension, it’s going to be the equivalent of a tax hike in the future cause you are still going to have to pay for police, and teachers, and firefighters, etc…”
There is more to the interview above.
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