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April 15, 2014 at 08:01 AM
There is more bad news about the public pension system, this time coming from renowned hedge fund manager Bridgewater Associates.
The Westport, Conn.-based fund has warned that public pension funds will likely earn an annual return of four percent or less in the years ahead, which could mean bankruptcy for a whopping 85 percent of the funds in three decades.
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Bridgewater reached its conclusions by stress testing the country’s public pension plans to see what could happen in a wide range of possible market conditions. In 20 percent of the scenarios, public pensions run out of money in 20 years, while in 80 percent of the scenarios, public pensions run out of money within 50 years.
Public pension plans now have just $3 trillion to invest to be able to pay out future benefits of $10 trillion over the next decades, Bridgewater said. An annual return of roughly nine percent is needed to be able to cover those payments.
Many pension plans operate on the assumption they will see seven to eight percent annual returns, which many analysts say is too high.
