Public pensions roll the dice

Article Highlights

  • Investment losses= limited resources for gov't programs & some public employees may face #benefit cuts

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  • 2007-2010:public pensions’ target asset allocations shifted 7% of assets to higher-returning (but riskier) investments

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  • More risk means #pensions impose a contingent liability on #taxpayers to bail out funds if investments fall short

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Pensions for state and local government employees lost 27 percent of the value of their investments from 2007 to 2008 and today assets are still below 2007 levels, while liabilities have continued to rise. In part, these investment losses stemmed from a decades-long trend toward riskier investments, which began with a shift toward equities in the 1980s, and today toward so-called alternative investments such as private equity and hedge funds. As a result of investment losses, taxpayers face larger pension contributions, other government programs are starved of resources, and some public employees may face benefit cuts.

How have these losses affected pensions’ investment strategies going forward? Did the financial meltdown result in public-sector pensions backing off these high-risk investment strategies, or have they doubled down in an attempt to make up their losses?

Andrew Biggs is a resident scholar at AEI.

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About the Author

 

Andrew G.
Biggs
  • Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

    Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President's Commission to Strengthen Social Security. Biggs has been interviewed on radio and television as an expert on retirement issues and on public vs. private sector compensation. He has published widely in academic publications as well as in daily newspapers such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress on numerous occasions. In 2013, the Society of Actuaries appointed Biggs co-vice chair of a blue ribbon panel tasked with analyzing the causes of underfunding in public pension plans and how governments can securely fund plans in the future.

    Biggs holds a bachelor’s degree from Queen's University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.

  • Phone: 202-862-5841
    Email: andrew.biggs@aei.org
  • Assistant Info

    Name: Kelly Funderburk
    Phone: 202-862-5920
    Email: kelly.funderburk@aei.org

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