Next disaster: Pensions

A few months ago I blogged about reports that were quite forceful with arguments that underfunded pension systems will be the next disaster to hit us.  We might have made promises that might just become too difficult to keep.

This report in Reason is the latest to expand on that argument.  

 State, local, and private pension plans covering millions of government employees and union workers with “defined benefit” accounts are teetering on the brink of implosion, victims of both a sinking stock market and investment strategies influenced by political considerations.

From January to October 2008, defined benefit funds—those promising a predetermined amount of retirement money to the payee—averaged losses of 26 percent, according to Northern Trust Investment Risk and Analytical Services, making it the worst year on record for corporate and public pension funds. The largest public pension fund in the United States, the California Public Employees Retirement Security System (CalPERS), lost a staggering 20 percent of its value in just three months last year. In May 2008, Vallejo, California, became the largest city in the state ever to file for Chapter 9 bankruptcy, thanks largely to unmanageable pension obligations. The situation in San Diego looks worryingly similar.