Over several decades, Louisiana politicians promised far more in benefits than the state was willing or able to pay to its retirees, creating billions of dollars in unfunded liabilities. In 1988, voters approved a constitutional amendment requiring those debts to be paid by 2029.
That was a nice first step, says Rep. Kevin Pearson, a Slidell Republican who chairs the House retirement committee. But the state didn’t even cover the full interest payments for the first 15 years, he says, and didn’t make a principal payment until 2013. The good news, Pearson tells Business Report in a feature from the current issue, is the state’s major retirement systems are generally on the right track nowadays.
However, the assets of those systems, and of others around the country, have been rocked by recent downturns in markets around the world. If the turmoil is brief, the big systems should be fine. But if this turns out to be the new normal, all those years of can-kicking have left system officials with few palatable options.
After several years of mostly gains, the U.S. stock market suffered a major correction in August and has been volatile ever since.
Based on data from the Federal Reserve, public pension funds nationwide are sitting on nearly $4 trillion in assets that are more than 70% exposed to equities and other riskier assets, such as commodities and hedge funds. States with massive pension funding deficits are likely most in danger of suffering big losses given their risk profiles.
Since the financial crisis, Reuters reports, many public pension funds have increased their exposure to hedge funds, international stocks and other higher-risk assets to meet ambitious investment return targets. Most funds assume a rate of return of 7% to 8% a year, according to a May report by the National Association of State Retirement Administrators. Those assets can also take a big hit when equity and related markets plunge.
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