Pension Plans Looking for Riskier Market Results

Most important thing is for the employee to jettison the idea of the short term for the long term commitment. If the market goes down so be it, history shows it will go back up and over the long haul the average return will be good. Sadly too many people are only interested in seeing huge returns instead of watching the returns over the long term build the equity needed for a good retirement.

It's like the 'lotto mentality', many what the big money right now, patience is not a strong suit for many.

Betting on the Big Returns: How Missouri Teacher Pension Plans Have Shifted to Riskier Assets
Source: Michael Rathbone and James V. Shuls, "Betting on the Big Returns: How Missouri Teacher Pension Plans Have Shifted to Riskier Assets," Show-Me Institute, July 2015.

August 4, 2015

Defined-benefit public employee pensions are increasingly relying on investment returns, rather than employee and employer contributions, to pay for the guaranteed benefits to pensioners. This makes the selection of a plan\'s investment strategy important.

Nationally, public employee pension plans have shifted investments from low-risk, low-return strategies which rely on fixed-income investments to high-risk, high-return strategies which include more equities and alternative investments.

An examination of national trends yields: From 1984 to 2013, investment returns accounted for 62 percent of pension plan revenue. A Pew Study revealed that public pensions have shifted assets away from fixed-income investments towards riskier investments. Researchers with the Show-Me Institute found in Missouri that: All of the major public pension systems has shifted assets to more risky investments, namely equities.

From 1992 to 2014, fixed income assets in the largest pension system have dropped from 85 percent to 24 percent. Equities have risen from 15 to 48 percent.

Given these shifts, there should be some mechanism to ensure that if returns do not come in as expected and there is a funding shortfall, taxpayers are protected.