Investment Expert Reports Pension Underfunding Crisis in America

A recent study published by the respected Chairman of J.P. Morgan’s Market and Investment Strategy, Michael Cembalest, evaluates the current pension-funding deficit across the U.S. State and local governments are trending towards inadequate funding for pensions obligations. However, this kick-the-can approach is running out of road and someone needs to pick up the tab. Pension fund forecasts are misguided by over realisticreturns that create a wide gap between assumption and reality leaving pensions and taxpayers to pay the burden of bureaucratic mismanagement.

In the released report, J.P. Morgan determined the amount to service all future obligations accrued to date. For pensioners and taxpayers, the findings are concerning. Houston would have to raise taxes by 26 percent, cut services by 23 percent, or increase worker contributions by 772 percent. This is not a pleasant outcome in any of the three scenarios given by Cembalest’s findings.

The wide funding gap puts the retirement of public employees at risk creating uncertainty for the pensioners and families. J.P. Morgan noted in his report that pensioners, “have earned the benefits they accrued and which were granted by state and local legislators, and have the right to expect them to be paid.” J.P. Morgan is correct. Our elected officials and pension board members must protect our pensions.

Pension fund managers have a fiduciary responsibility to generate the maximum returns for public employees. It is crucial to the retirement and well-being of pensioners that fund managers adhere to the responsibility they agreed to fulfill. Without these returns, either pension funds take a cut or taxpayers make up the cost – neither of these are acceptable solutions to our pension-underfunding dilemma.

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