Teacher's Pension Plan Commits to High Rish Investment : Good Idea?

Goodness, one has to wonder just what information the directors were using to make just dynamitic changes in the teacher pension plans? Given most people have no idea how money is made in the stock market, it's all depends on patience over the long haul, but the general public has no patience for success, they want a lot of money and they want it right now.

The general attitude is, 'I'm retired now so give me my money'.

People heading into retirement, for the most part, did not established a plan of savings and investments that will carry them beyond their pension allocations, like a life long strategy of buying, on a regular basis, other stocks and bonds or regular contributing to a savings account that will be in addition to what ever the pension and Social Security gives them to survive.

Many retires could not shake the life long old adage of 'live fast, love hard and die young' mentality, and so many end up with just enough to survive. But now with the ups and downs of the market, even survival might be at risk.

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.