Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Dynamic Maximizers®
  • Retirement Compounders®
  • Free Email Signup

RISKY BUSINESS: Pension Managers Risking Clients’ Money to Plug Deficits

October 19, 2021 By E.J. Smith

By ninefotostudio @ Shutterstock.com

It never ceases to amaze me how fiduciaries take risks with other people’s money. A case in point is Farouki Majeed, an Ohio pension manager overseeing the investments responsible for the benefits to over 80,000 retired librarians, bus drivers, cafeteria workers, and other former employees. How is he doing it? By adding risk. Not good. “The solution for Mr. Majeed—as well as other pension managers across the country—is to take on more investment risk,” reports Heather Gillers at The Wall Street Journal. “His fund and many other retirement systems are loading up on illiquid assets such as private equity, private loans to companies and real estate.”

Gillers continues:

This public-pension predicament is the result of decades of underfunding, benefit overpromises, unrealistic demands from public-employee unions, government austerity measures and three recessions that left many retirement systems with deep funding holes. Not even the 11-year bull market that ended with the pandemic or a quick U.S. recovery in 2021 was enough to help pensions dig out of their funding deficits completely.

Demographics didn’t help, either. Extended lifespans caused costs to soar. Rich early-retirement arrangements and a wave of retirees world-wide also left fewer active workers to contribute, widening the difference between the amount owed to retirees and assets on hand.

Low interest rates made the pension-funding problem even more difficult to solve because they changed long-held assumptions about where a public system could place its money. Pension funds pay benefits to retirees through a combination of investment gains and contributions from employers and workers. To ensure enough is saved, plans adopt long-term annual return assumptions to project how much of their costs will be paid from earnings. Those assumptions are currently around 7% for most funds.

Action Line: Unfortunately for those stuck in these plans, they have little say in how their retirement savings are invested. I bet if you asked them if they feel that taking on more portfolio risk in their golden years sounds like a good idea, they’ll give you a resounding NO.

Originally posted on Your Survival Guy. 

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • Vanguard Pulls the Plug on Prime Money Market Fund
  • Trump Right on the Money with Iran
  • Where Money Goes to Die
  • Author
  • Recent Posts
E.J. Smith
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris.

Please get in touch with E.J. at ejsmith@youngresearch.com
Latest posts by E.J. Smith (see all)
  • RURAL RENAISSANCE: America Finds the Country Again - June 29, 2022
  • Why Work When Taxes Take It All? - June 28, 2022
  • Your Survival Guy in Paris: Awakened from His Slumber, “Dad, I’m Going to London” - June 27, 2022

Search Young Research

Most Popular

  • Here’s Why You Need a 15-Year Retirement Investment Plan
  • Will the Fed Stick to Its Course?
  • Why Work When Taxes Take It All?
  • The Power of a Compound Interest Table
  • RECESSION? Dow 25,000, $8 Gas, Rising Interest Rates, Spell Mid-term Crack Up
  • Investing During a Recession
  • Is the Great Job Boom Over?
  • What Happens to Your Passwords When You Die?
  • Are Google, Amazon, and Microsoft About to Crash This Specialized Real Estate Market?
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Could this Be the Vanguard GNMA Winning Edge?

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

RSS The Latest at Richardcyoung.com

  • An Assault on America’s Central Core
  • Hillary Clinton Claws at Relevance by Publicly Insulting Clarence Thomas
  • RURAL RENAISSANCE: America Finds the Country Again
  • The Best Investment Strategy is Simple, Like Analog Music
  • RED WAVE COMING? Americans Fear the Future of Biden’s Economy
  • Biden’s Approval Lower Now than Trump’s Was after January 6, 2021
  • With a Nod from Turkey, Finland and Sweden Speed Toward NATO Membership
  • 10th AMENDMENT: Dobbs Decision a Win for States’ Rights
  • What Just Happened? Fixing Its Historic Mistake
  • Why Work When Taxes Take It All?

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2022 | Terms & Conditions

 

Loading Comments...
 

    loading Cancel
    Post was not sent - check your email addresses!
    Email check failed, please try again
    Sorry, your blog cannot share posts by email.