Public Pensions: Unrealistic Assumptions


One of the reasons public pension plans continue to be so poorly funded are Unrealistic Assumptions.  There are numerous assumptions made by the investment and actuarial industries that serve public pension systems.  Underlying these assumptions is pressure to use overly optimistic assumptions which translates to lower budget demands upon plan sponsors (i.e. states, counties, cities, school districts, etc.)

The Wall Street Journal has an article which highlights just one example of these overly optimistic or unrealistic assumptions.  The median assumed investment return on pension assets is 7.25%.  Over the past 10 years the actual median return was 6.79% and over the past 20 years the actual median return was 6.49%.

The Wall Street Journal article