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85% of public pensions could go bust in 30 years

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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.

But even if they did earn that much, they would still face a 20 percent shortfall, according to Bridgewater.

A study released in January by the Rockefeller Institute of Government also found that state and local government pension systems could be in trouble.

“Bad incentives and inadequate rules allowed public sector pension underfunding to develop,” the report said.

“They mask the true costs of pension benefits and encourage underfunding — under-contributing, and excessive risk-taking — trapping pension administrators and government funders in potentially destructive myths and misunderstanding.”

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