Is it true that the P/F Pensions have been averaging a return of over 8.4% over the last 30 years, inclusive of the Great Recession? If so, I would say that I wouldn't expect a much different return moving forward, would you? Also, I heard that the study found that the fund was only 90 million in unfunded liabilities? Maybe Ken McNamee can explain where he comes up with his 200 million figure?
The past 30 years have been an unprecedented bull market for bonds with outsized returns due to declining interest rates. Today bonds yields are a decades' lows which make future returns very lost historically. Traditionally pension funds invested 60% in stock and 40% in bonds. Low bond yields have pushed pension managers to take on more risk by increasing the percentage allocated to stock, now around 75% stocks and 25% bonds, Stock can have wildly different returns from decade to decade. Projected stock returns are calculated by the S&P 500 index dividend yield (2.5%) and economic growth rate (3%-4% long term). It works out like this: 2.5% + 4% = 6.5% projected stock returns. Bonds yield about 3%. The math is: 6.5% (.75) + 3% (.25) = 5.725% projected returns before fees. Subtract fees of let's say .25% and we end up with 5.5% pension returns, significantly less than the 8.4% of the last 30 years. If the realistic 5.5% is used as the discount rate it results in greater pension projected deficits. More cash is required to make up for the lower returns.