A disaster waiting to happen.
Regarding “Era of Low Interest Rates Hammers Millions of Pensions Around World” by Timothy W. Martin, Georgi Kantchev and Kosaku Narioka (Nov. 13th):
Considering that the pension system of Illinois has a funding ratio of 37.6%, it was amusing (and frightening) to read that the Dutch government worries about ABP’s ratio of 90.7%.
Economists worldwide have praised the zero-interest rate policy (ZIRP) for limiting the burden of interest payments on growing government debt. But pension funds are suffering the collateral damage. Since governments are often the backstops for pension plans, either directly in the case of public plans or indirectly through various pension guarantee programs, the money saved on interest payments may ultimately be substantially offset by pension shortfalls.
It is also shocking that, in the world of ZIRP, Illinois’ largest pension is still allowed to discount its liabilities at an unattainable 7%. Likewise, after the bankruptcy in Detroit and other looming problems, why are governments still allowed to use cash basis accounting? Either of these practices would earn a private sector manager some serious jail time under Sarbanes-Oxley.
Pensions have become America’s white walkers – ignored by most but a huge threat waiting to happen. And winter is coming.