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Public pension fund follies

The New Jersey pension system is badly troubled. They’ve been projecting an 8.25% return, which is even higher than the Fantasyland 8% returns that other public pension funds use. Some outside estimates have them going broke within ten years.

Seattle’s pension fund has dropped off a cliff, with a funding ratio of just 64%, sharply down from 92% in Jan, 2008. They’ve been estimating a 7.75% return, which is foolishly high.

A prime cause of public pension fund debacles is that their rate of return projections are nonsense. 8% is difficult to make year after year in a bull market, much less in a bear market like now. Worse, some pension funds are deliberately taking on more risk in frantic attempts to catch up. This will not end well.

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