U.S. Retirement Funds Brace for Losses

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U.S. Retirement Funds, Heavy on Stocks, Brace for Losses
A sustained downturn could squeeze state and local government budgets

At the nation’s largest pension fund, the California Public Employees’ Retirement System, total reported holdings have fallen to $475 billion as of March 2 from $482 billion at the end of January. The S&P 500’s total return was minus 2.71% during the same period. Roughly half of the California worker fund is in stocks.
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https://www.wsj.com/articles/u-s-re...9cp5ytgtxnm&reflink=desktopwebshare_permalink
 
A pretty sad state of affairs when the S&P 500 has returned 31% in 2019, 18% in 2020, and 28% in 2021.

What most fail to realize is a savings rate is more important than rate of return. Often times expected future returns are too high.
 
If you math it out, the retirement fund only lost 1.5%.

The S&P lost 2.7% in the same period - which appears to be the month of February.

That means that CalPRS is not overleveraged. It appears to have a nice allocation. Why the scary article. Do those goobers want pension funds to 'invest' only in cash and short term bonds. This is how the market works. Nothing out of the normal. No 2007-09 here so far. And, this allocation will buy the CalPRS management time to take more of the risk off the table if they find the need. Nothing to see here, move along...
 
Boghie said:
Do those goobers want pension funds to 'invest' only in cash and short term bonds. This is how the market works. Nothing out of the normal. No 2007-09 here so far. And, this allocation will buy the CalPRS management time to take more of the risk off the table if they find the need. Nothing to see here, move along...
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Calprs approved a new allocation to global equities of 42% from 50% and will take effect in July 2022. I'm guessing this will take some time perform the reallocation, this isn't a TSP account where they can just "go to the safety of the G fund."

Note the increases in private equity and private debt. The reason for this is those asset classes tend to move different from the overall market. A good way to get in on this as a retail investor would be KKR. Calprs also noted a 5% exposure to leverage.

The CalPERS Board of Administration today selected a new asset allocation mix that will guide the fund’s investment portfolio for the next four years, while at the same time retaining the current 6.8% target it assumes those investments will earn over the long term. The board also approved adding 5% leverage to increase diversification.
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https://www.calpers.ca.gov/page/new...eeps-discount-rate-at-six-point-eight-percent

The big issue is most pension funds can't afford to take any losses at all while paying down higher liabilities than money they are taking in. From the original WSJ article, another thing to add to the potential future bailout list.

Over the past 12 years, blockbuster stock performance has swelled pension coffers, bringing state and local governments closer to being able to cover those liabilities and taking some of the pressure off taxpayers already burdened by high pension costs.

A downturn, however, could ultimately squeeze state and local budgets. That is because when pension-fund returns fall short, the workers and government employers that pay into them end up helping to make up the shortfall.
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Bullitt said:
The big issue is most pension funds can't afford to take any losses at all while paying down higher liabilities than money they are taking in. From the original WSJ article, another thing to add to the potential future bailout list.
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And, thereon lies the issue. Much like Social Security, big state (City, State, Federal) pension loving politicians promise a better benefit than they can actually deliver. Former Politicians make the promise that Future Politicians 'have' to honor. Math is hard.

Math is harder when you need to make 6.8% to kinda break even. Get a couple of poor years (not even down years) and the fund is in trouble. Make no mistake about it, a pension is just a type of retirement account. The only advantage a pension has is that it locks current employees into the funding stream. Today's employees contributions smooth out the inherent issues presented with cash outflows during crap markets.

On the other hand, as Bullitt mentioned, you cannot make adjustments. I am 55% in G/F right now. That would not be possible in CalPRS. In fact, I might go 65% G/F if the S&P500 tanks a bit further. CalPRS members don't have that option. That is one reason why I don't like pensions, but the main reason I don't like pensions is that I don't like retiring on a politicians promise. A major reason I don't like our pension is that it is 100% invested in the G-Fund'. No bueno... I would prefer CalPRS.
 
Boghie, What do you mean by you don't like our pension because its 100% invested in G fund?
If TSP funds are invested in equities or bonds, is it not with a contracted fiduciary? If not, then that us truly scary...

Then again, thinking you may be talking about funding supposedly held for eventual annuity issuance at retirement...? But even with that, I thought that was purchased on our behalf at that time...so money no longer with Govt theraftee... Hummm.. But if Govt fails before retirement, before buying our annuity, I would think it might be very tough to get Uncle to keep his promise on that.
 
FERS is different from state/local pensions in that Federal can print money to honor obligations and state/local cannot. FERS "pension" will always be there, but what it might be worth someday is another thing.
 
DreamboatAnnie said:
Boghie, What do you mean by you don't like our pension because its 100% invested in G fund?
If TSP funds are invested in equities or bonds, is it not with a contracted fiduciary? If not, then that us truly scary...

Then again, thinking you may be talking about funding supposedly held for eventual annuity issuance at retirement...? But even with that, I thought that was purchased on our behalf at that time...so money no longer with Govt theraftee... Hummm.. But if Govt fails before retirement, before buying our annuity, I would think it might be very tough to get Uncle to keep his promise on that.
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Your TSP assets are in a brokerage 'lock box'. It is really a 401(k). If you wish you can keep those assets in the brokerage, annuitize all/some of it for an insurance company backed money stream, or move it to another brokerage on retirement. It is yours and cannot be directly mucked with by your betters.

Your pension is just an unfunded promise. I am paying something like 0.8% of my salary - or, something small and stupid like that - and the Feds are paying the rest - to add up to 15% I think. They 'invest' that whole amount in the G-Fund - but they promise you a far greater income stream than that fund would generate. It's a pension, not an annuity. I really don't know if the gubmint annuitizes a lump sum on retirement to create the pension stream - that would be nicer. What I do know is that if I math out what that lump sum should be it does not add up to what it would have to be when I retire to generate the promised cash stream. Other than the fact that it is basically a second Social Security check, and that if I were able to invest that 15% of my salary in TSP I would be much better off, it is basically a sugar daddy deal for us. There is also no risk of outliving it. All good unless a politician jacks it.
 
Bullitt said:
FERS is different from state/local pensions in that Federal can print money to honor obligations and state/local cannot. FERS "pension" will always be there, but what it might be worth someday is another thing.
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Truth...

If you were living off the Federal pension last year you took it in the shorts. You probably did not even realize it, but after a year or two you would. When you 'earn' a safe 1.5% but lose 7% to inflation you are going to the poor house.
 
Great information! Thank you Boghie... I had understood that upon retirement, the Govt would buy an Annuity equal to the promise made to provide 1% for each year of service based on high 36 months in a row, plus some other gyrations. I definitely need to look into this. If Govt is paying you the "annuity" after retirement out of its own funds each month and not putting out the money to buy us the annuity from a third party when we retire, this is about as secure as Social Security. :worried:
 
DreamboatAnnie said:
Great information! Thank you Boghie... I had understood that upon retirement, the Govt would buy an Annuity equal to the promise made to provide 1% for each year of service based on high 36 months in a row, plus some other gyrations. I definitely need to look into this. If Govt is paying you the "annuity" after retirement out of its own funds each month and not putting out the money to buy us the annuity from a third party when we retire, this is about as secure as Social Security. :worried:
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Honestly, DreamboatAnnie, I don't know the mechanism.

Like you, I would trust things a little more if the money leaves upon retirement. I don't know if it is a budget line item or a annuitization of a proper lump sum. If a lump sum is annuitized at time of retirement it leaves political risk out of the equation - at least to the best extent possible.

Anyway, our TSP is likely to be 65% - 75% of our total retirement package which should take care of our needs. The other income streams (Pension and Social Security) will be used for our Yacht captains and Winnebago drivers.:rolleyes:
 
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