Employee Benefits

Connecticut Treasurer Calls for Re-Evaluation of Pension Returns – Bloomberg

More on states that can’t manage the promises of public employee pensions and put taxpayers at risk. Pure political incompetence! And dare we ask their excuse for only earning 0.35% in the last year  Yikes, I did better than that🤑

Connecticut Treasurer Denise Nappier said the 0.35 percent return posted by the state’s $29 billion retirement system in the year that ended in June underscores the need to adopt more realistic investment assumptions. The teachers’ and state employees’ funds, Connecticut’s two biggest pensions, target an 8 percent annual return. Such retirement plans are being forced to re-evaluate projected investment gains that determine how much money taxpayers need to put into them, given record-low bond yields, slow economic growth and declining stock prices.

“If return assumptions are set at levels unlikely to be attained, it will be difficult to achieve them without pursuing high risk-investment strategies,” Nappier said in a statement Monday. “It is far more prudent to structure the portfolio based on what is achievable, rather than what is desirable.”

Source: Connecticut Treasurer Calls for Re-Evaluation of Pension Returns – Bloomberg

And remember, these are the types of bureaucrats who want to run your health care system.

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11 replies »

  1. My 403B HAD to be invested in a benchmark government index so as NOT to loose one dime…the flip side, that benchmark since ’08 has been below 1%, hence all but negative return. I pulled the 403B in lump sum and never looked back.

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    • Well, you actually lost a lot of money since including inflation you had a negative return. What did you accomplish? You would only have lost money if you withdrew funds at their low point in 2009. If you had stayed the course and even contributed more money during the recession, you would be way ahead of the game. And, I’m willing to bet that if you had invested in say a S&P 500 index fund all the years you had your plan, you would be way, way ahead of where you are now. I retired in 2010 and stopped saving in my 401k. Today for every dollar I had then I have $1.20 AFTER taking out two required minimum distributions and with only 40% of the account in stocks with the rest in fixed income.

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  2. I don’t think anyone can honestly dispute that public pension systems over promise and under perform. We all know that politics is the reason for the over promise but you need look no further than the Federal Reserve monetary policy to find the reason for the under-performance. This under-performance also holds for insurance companies.

    If interest rates are held artificially low and pension systems are mandated to have their assets in safe low yielding bonds there isn’t much a pension administrator can do. If pension systems are allowed to purchase already inflated assets to improve performance numbers and a market correction occurs, things can get a lot worse.

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    • I was not aware states limit investments to low yielding bonds which if the case makes an assumed rate of return of 7-8% outright criminal. I don’t think that is the case, however. Most states do use a 7-8% return which would preclude bonds for the most part.

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      • It is criminal and I have been saying this for over a decade that 8% returns are in the past. Currently the last 10 yr returns for S&P = 5.25%, DJ = 4.61%, Nasdaq = 7.6%, assuming that you have three equal index funds of these three, it would yield 5.8%. Now throw a percentage of a stable bond fund making somewhere between 0% to 3% and average that in you’ll be lucky to make 5%.

        As long as the interest rate remains low for “safe” securities, long term results are going to hurt retirees and more importantly young future retirees from the lack of compounding the returns over time. The young people will be forced to take more risks. This will drive brokers who will give risky advice and bad promises and that will cost them money or scare them out of the market.

        People are not well educated in financial matters, look at college loans, home mortgages, and credit card debt.

        It seems to me that the rules changed around the tech bubble crash but I am not a expert in these matters. I just know what I have in the bank and I have not played with it much and I have not withdraw it either but it has not grown 8%.

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      • Investing is a long term game, not short term. I can also show you a year of 22% gains but it followed 29% loss and by my math that is still a 7% loss over two years. Retirement is long term investing and five years is only good if you are already withdrawing from your 401K.

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      • That’s my point too. It is long term, but what’s missing I think is consideration of reinvested dividends which add to the growth significantly.

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      • I wasn’t born in 1928 and what the S&P did from 1928 to 1987 does not matter. That is old history that everyone keeps quoting. Past returns are no guarantee for future returns. I have 4.1% returned over the last 29 years in my well diversified 401K.

        I imagine that climbing out of the stock market crash of 1929 and the years that followed must make the numbers look good. I on the other hand lost many year of gains recovering from paper losses of the 2000’s. ( I didn’t sell, I held on).

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      • My point was the long term view. I suspect you not only made your “loss” back, but quite a bit more. I just checked several 529 plans I fund and over the last ten years they returned 7.67% annually. You can pick any 2o year period and get a different answer, but it will nearly always be greater than 7%.

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