US pension plans warned they will run out of money by 2028

US pension plans warned they will run out of money by 2028

Seven struggling public funds could have a severe impact on state finances as their funded ratio drops.

The weak financial condition of seven US public pension plans threatens to deplete their assets by 2028, leading to severe risks for the living standards of thousands of American employees and retired workers.

Many US public pension plans had not fully recovered from the 2007/08 financial crisis before coronavirus struck, triggering turmoil across financial markets. The correction in the US stock market has increased the long-term structural problems across the entire US public pension system, particularly for the weakest funds. “Public plans with extremely low funded ratios in 2020 may face the risk of running out of assets in the foreseeable future if markets are slow to recover,” said Jean-Pierre Aubry of the Center for Retirement Research at Boston College, which carried out a detailed study on the plight of US public pensions.

More than 320,000 members of the New Jersey Teachers and Chicago Municipal public pension plans face the biggest risks as severe cash outflows are draining the assets of these two schemes.  A slow recovery for the US stock market could result in Chicago Municipal’s funded position falling from 21 per cent this year to just 3.6 per cent by 2025. This would leave assets to cover just three months of the fund’s retirement payments, according to CRR’s analysis. New Jersey Teachers is also burning through cash, with its funded position projected to decline from 39.2 per cent to 23.2 per cent over the next five years.

FT

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