While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k)balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul, a practice that Mayor Michael R. Bloomberg recently called “indefensible.”
Now public pension funds across the country are facing a painful reckoning. Their projections look increasingly out of touch in today’s low-interest environment, and pressure is mounting to be more realistic. But lowering their investment assumptions, even slightly, means turning for more cash to local taxpayers — who pay part of the cost of public pensions through property and other taxes.
This is particularly appropriate in Illinois, where the widely quoted $86 billion in unfunded public pensions is really a chimera. For years, the fund managers had been publicly projecting unrealistically high returns.