According to a recent annual survey published by the Census Bureau, State and local governments have witnessed the number of those benefiting from public pensions rise by 3.3% in 2016 to total of 10.3 million people. This is an increase from 9.9 million beneficiaries in 2014 and 10 million in 2015. While contributions to public pensions’ funds rose 6.6 percent to 191.6 billion dollars, earnings from investments have undergone a steep decline of 67.9% to $49.9 billion, from $155.5 billion in 2015. Observers attribute this decline due to market volatility which has produced unexpected market fluctuations.
Benefits have also seen an overall increase of 5.4% to $282.9 billion for 2016, rising from $268.5 billion in 2015. This is in juxtaposition to the revelation that the total assets within the public pension funds have decreased by 1.6% to 3.7 trillion in 2016, a fall from 2015’s $3.8 trillion. Cautious consideration is warranted if this trend continues in this current fashion. Currently, workers who retire from the public sector receive $1.90 in benefits from every $1 they contribute to the pension fund. Furthermore, states like Arkansas, Wisconsin, Minnesota, Oregon, South Dakota, Colorado, New Jersey, Ohio and Florida have retirees receiving $1.90 in benefits or higher for every $1 in total funding contributed to the public funds.
It is no secret that there have been analysts who have called into question the integrity of the public pension system citing asymmetrical relationships in funding and payouts. Often, when pension liabilities are tabulated, the underfunded portion as well as associative mandatory cost like healthcare is left out of the calculus. If true, this would create errors in the needed amounts in contributions and expected rate of returns for public pensions to remain solvent.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More