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Pension Crisis: Will Most Public Pensions Fail?

Pension plans have been in bad shape for a long time. Even as many private companies froze or eliminated pension plans, public pensions represent a big threat to the workers and retirees who depend on them, and one recent study from Bridgewater Associates found that 85% of public pensions could fail within the next 30 years.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, runs through Bridgewater's analysis, noting its estimate that public pensions have $3 trillion in assets to cover $10 trillion in eventual liability. The study notes the huge gap between the returns you'd have to earn to bridge that gap and realistic assumptions about future returns, and Dan points out that while some think Bridgewater's estimates are too low, most pension plans themselves don't expect to earn high enough returns to cover future liabilities. Dan concludes that some combination of better investments and possible benefit reductions could be necessary to ensure the health of public pensions in the long run.

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Have general questions about pensions or Social Security? Email them to SocialSecurity@fool.com, and they might be the subject of a future video!


Read/Post Comments (6) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 19, 2014, at 11:13 AM, uwbushtit wrote:

    Not all public pensions are created equally. Lumping the public pensions of healthy states with those of toxic states is irresponsible reporting IMO.

  • Report this Comment On April 19, 2014, at 1:45 PM, roger142 wrote:

    In my state, Georgia, our government employees have been able to retire with 30 years since the 1980's. Now it is hard to find a government employee over 60 years old.

    The thing is we now have people retiring in their mid fifties with full pensions, and many of them will end up collecting retirement pay longer than they actually worked.

    I believe that in a few more years tax payers are going to end up paying for more retired government employees, that we actually have presently still on the job. At first it will be the rural counties that no longer can afford both, paychecks for present employees and pension payouts for retirees.

    As usual this will be another financial crisis that politicians knew was coming, but choose not to deal with it until it reaches Detroit status.

  • Report this Comment On April 19, 2014, at 7:16 PM, shorthosep wrote:

    Why not look at the number 1 rated public pension system in the country and model public pension systems after that! The state of Wisconsin is rated #1 with a 99% FULLY FUNDED SYSTEM. The # 1 rule for municipalities is to put the required amount in each year and this is the most important part-------- keep your hands off. The reason the majority of pensions are in trouble is the state sees all that money,in Wisconsinit's 100 billion dollars, and legislators stay up all night thinking about how they can get their hands on it AND WHICH ONE OF THEIR POLITICAL DONORS THEY CAN HAND IT TO.In Wisconsin this happened once and the states supreme slapped the governor hands and told him it's not the states money it's their employees money.

  • Report this Comment On April 19, 2014, at 9:17 PM, barnes wrote:

    "possible benefit reductions"?

    When I left civil service (City of Wadsworth, Ohio), I was told that if I left my contributions in the Public Employees Retirement System, my monthly retirement benefit would be close to $1200 when I turned 60.

    Last month I got a statement that says it will be $360.

  • Report this Comment On April 20, 2014, at 5:24 AM, greyhound44 wrote:

    Hopefully, ALL government retirees will Starve, and DIE freezing in the DARK!!!

  • Report this Comment On April 20, 2014, at 5:25 AM, greyhound44 wrote:

    Hopefully, ALL government retirees will die; starving, and freezing in the dark!

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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