ROGER BERKOWITZ –
Readers of both Via Meadia and the Hannah Arendt Center blog are well acquainted with the pension train wreck that is heading our way. It is not only public union pensions but also those corporate pensions that still guarantee defined benefits that are radically underfunded. And what hides the immensity of the problem is continued unrealistic assumptions about long-term future returns. As WRM reported recently Maryland—to take just one example—continues to assume a 7.75 percent annual return on its public pensions, which is even higher than the 6.6 percent 100-year historical average on stock returns.
While there is blame to go around—including feckless politicians and Wall Street hucksterism—the root of the problem may be a general unwillingness on all sides to realize that the past 100 years may have been an aberration. This is the argument that legendary investor Bill Gross makes in a report he sent to PIMCO clients this week.