Funds worth trillions of dollars start to plummet in value. Political pressure to be “socially responsible” distorts the market decisions of government-related enterprises, leading to risky investments. Investors who once considered their retirements safely protectedwake up to a sinking feeling of uncertainty and gloom.
Sound like the great mortgage-fueled financial crisis of 2008? Sure. But it also describes a calamity likely to hit as soon as 2009. 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.
Now it doesn't matter how hard I try, I can feel some sympathy for the "beneficiaries" of this.
In the early '80's I had been contributing to a defined benefit plan superannuation scheme for some 20 years. The tri-ennial audit* certification was about 5 years overdue. (There is a different name here that I can not for the life of me put a neurone to). Then - revelation!!! It was announced by the Government that the fund was not technically but literally broke.
It turned out the the last released tri-ennial audit had shown an adverse trend in contribution account values and current pension values. That trend had not been reported by the auditors.
It had reached the point where the fund was paying current pensions from current contributions and had been doing so for some while.
Overnight, I lost in excess of 1/3 of the total value of my personal account plus the right to the guaranteed benefits.
Currently, my super funds are all specified as "Cash and Savings only" for investment. Yes the returns have been crap - less than 2 1/2% per annum for the past five years. But if they show a loss for last and this year there is going to be several different kinds of hell being raised.
*The missing word was "actuarial". Silly me.