When trying to get out of a hole, the first thing to do is to stop digging. When the hole is a state pension deficit, it’s also a good idea to throw away the shovel. The shovel in this case is defined benefit (DB) pensions, which are structured in a way that makes deficits likely. Defined benefit pensions depend on a combination of investments and contributions from employers and employees for funding to pay obligations to retirees. Investment returns vary from one year to the next, so a period of underperforming investments can lead to a shortfall in a pension plan’s assets relative to its funding projections. This happens surprisingly often because many pension plan managers calculate their contributions against discount rates based on unrealistically high year-on-year investment return projections. And they have an incentive to use discount rates based on high projected returns, because that means lower employer contributions....Now many states face huge public pension shortfalls because of years of their kicking the can down the road like this. State lawmakers are reacting in different ways, not all of them for the better.. To Read More…..
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