The $1.9 trillion shortfall in U.S. state and local pension funds is poised to grow as near record-low bond yields and global stock-market turmoil reduce investment gains, increasing pressure on governments to put more money into the retirement systems.
With the Federal Reserve holding interest rates steady at its meeting Wednesday, the funds will continue to be squeezed by rock-bottom payouts on fixed-income securities just as stocks fall overseas and post only modest U.S. gains. As a result, pensions in Illinois, Missouri and Hawai’i this year have moved to roll back the assumed rate of return on their investments, joining the dozens that have taken that step over the past two years.
‘There’s little light at the end of the tunnel as far as pension funding is concerned,’ said Vikram Rai, head of municipal-bond strategy at Citigroup Inc. in New York. ‘I expect funded ratios will drop further. It’ll require increased pension contributions on the part of the states and local government, but most state and local governments don’t have the ability to do so.’
Pensions count on annual investment gains of more than 7 percent to cover much of the benefits that come due as workers retire. But public plans had a median increase of 1 percent for the year ended June 30, the smallest advance since 2009, when they lost 16.2 percent, according to the Wiltshire Trust Universe Comparison Service.
This post was published at Newsmax
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