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Report: 85 percent of public pensions may run out of money in 30 years

By   /   April 10, 2014  /   2 Comments

By Rob Nikolewski │ New Mexico Watchdog

SANTA FE — Public pension systems across the country may be heading toward a financial meltdown, according to a series of stress tests conducted by a respected hedge fund.

Bridgewater Associates, based in Wesport, Conn., estimates it will take about $10 trillion for public pensions to meet their financial obligations in the coming decades as an aging population retires, but according to Bridgewater’s report there is only about $3 trillion in assets to invest.

In order to cover the coming expenses, Bridgewater estimates pension plans would need to earn an annual return of 9 percent.

ON BORROWED TIME? A series of financial stress tests from a noted hedge fund indicate 85 percent of public pensions could fail in 30 years.

ON BORROWED TIME? A series of financial stress tests from a noted hedge fund indicate 85 percent of public pensions could fail in 30 years.

The report said most states’ public pension systems work on a presumption of a 7-8 percent annual return on their investments, but Bridgewater says a more realistic goal is 4 percent — or even less.

Given all those factors, Bridgewater’s report concludes that as much as 85 percent of public pension plans could run out of money within three decades.

New Mexico’s two big public pension plans — the Public Employees Retirement Association and the Educational Retirement Board — work on presumptions of annual returns of almost 8 percent.

On the other hand, New Mexico is one of the few states that have passed a pension reform “fix” to try to tackle the looming financial problem.

In the 2013 legislative session, Republicans and Democrats — working with PERA, ERB and the state’s chapter of American Federation of State County and Municipal Employees — hammered out bills aimed at shoring up pension solvency.

“We haven’t let ours go completely in the cellar,” said state Sen. Stuart Ingle, R-Portales, who sponsored the ERB fix. “We tried to tackle the problem and I’m hopeful that we solved it. But our investments have to make some money. If not, we’ll have to come back and change them.”

State Sen. George Muñoz, D-Gallup, spearheaded PERA pension reform in the 2013 session, but worries about the annual rate of return assumptions.

“I think the 6 percent range, 6 and three-quarters” is more realistic, Muñoz told New Mexico Watchdog. “You’re floating that line. The economy is such a rollercoaster, there are no flat line projections where you can get a solid smoothing over for a three to five year period.”

The ERB plan works on a presumption of 7.75 percent a year. That’s pretty high, but last month ERB reported its investment portfolio returned 11.7 percent for the calendar year.

Ingle said adjustments may be needed in the future, but is relieved New Mexico passed the pension bill.

“Before, it was a like a gusher,” he said. “Now there’s a certain stream of money going out, but the pipe’s cut down from 12 inches to maybe three.”

Contact Rob Nikolewski at rnikolewski@watchdog.org and follow him on Twitter @robnikolewski

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Since 2010, Rob Nikolewski has covered New Mexico politics and investigated fraud, waste and abuse in government. He also writes an opinion column in the Sunday editions of the Santa Fe New Mexican. Rob joined New Mexico Watchdog after 20 years in television as a sports anchor and reporter. He anchored at MSNBC, New York City, Boston, Pittsburgh, Phoenix, Reno and Boise, winning three regional Emmy awards along the way. He holds a master's degree in journalism from Northwestern University, a master's in public administration from Columbia University's School of International and Public Affairs and a bachelor's degree in journalism from Trinity University in San Antonio.

  • Dan Secrist

    So, the percentage of people with virtually no personal stake in the long term “success” of the economy is projected to continue growing at a chaotically accelerating rate for at least two more generations, unless something both fundamentally structural and functional changes in the way we do business, eh?

    Did somebody say something about tipping points?

  • Charles

    Moving vans and bankruptcy court. If taxes get too high to pay for the defined benefit pension plans of our pampered public sector employees, we can load up our U hauls and move to another state.Much of the public sector pension liability can also probably be pared down in Bankruptcy Court a la Detroit.

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