According to estimates by Moody's Investors Service, the recent crash of the stock market cost the state pension funds $1 trillion or 21% of assets. Over the past 60 years, the investments of pension funds have become even more risky. According to the New York Times, in 2018, state pension funds invested 74% of the portfolio in risky assets such as stocks, private equity funds and hedge funds. The retirement payments of millions of US government employees are at risk, leaving two options: the government should increase taxes or reduce retirement benefits. Both options will not be supported by society.
However, top managers of pension funds have faced the dilemma whether they should invest in municipal risk-free non-profitable securities or place money in private sector. The analysts believe that managers of state pension funds should transfer part of the portfolio to municipal bonds. Reinvesting of government funds will help local authorities that need investment.
Sources: https://www.washingtonpost.com/outlook/2020/04/17/next-covid-19-victim-public-pension-funds/
Photos are from open sources.
