Here is how an international pensions expert responded to the blog post referenced below:
"This is partly true, although all can't be blamed on Wall Street.
"State schemes, although not the US Federal Public Service Thrift Plan, are defined benefit schemes which basically guarantee you a percentage of your final salary near retirement for every year you have contributed. This is paid till you die and often a reduced amount is also paid to your spouse till she dies. And all the time the amount is increased either by increases in inflation or wages.
"To fund this the pension fund takes advice as to what contribution rate is needed to be paid to meet the cost. There are a number of key variables but the most important one is the assumed investment return. And whilst Wall Street may do its bit in either meeting or failing to meet the assumptions, it will be interesting in the future, given the willingness of US residents to sue for everything, to see if somebody sues the trustee of the pension fund or the fund's actuary. The main reason for the debt is that assumptions used in most of these scheme have been totally unrealistic. Many States have has assumed rates of return, for every year, of around 7 or 8% above inflation. In the UK or Australia the most optimistic actuary would be saying no more than 4%, many would argue for 3 or less. The result of such high assumed returns is that the Actuary tells the employer that how much he needs to put into the scheme is much lower. And that is where the problem mainly lies. The true funding rate for many of these schemes should be nearly 30% of wages but of course they don't want to pay that much with the consequence that there is a huge deficit and that deficit is then made worse when Wall Street goes south.
"But it seems a very good source of information. Thanks for sending it to me."
January 17, 2011 | Pension Pulse
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