I think g5000 essentially said that. Rates of Return were overestimated following the lovely Slick years. It seems to me that in my state the pension fund has made up its losses in the credit debacle, and is prolly showing a 5% or so return even figuring in those years. And, contributions were set too low, even as benefits were expanded. Here, the gop was the culprit, though a gop governor also increased employer and employee contributions, with the result that while the situation is still bad, it could be worse.
What happened was in the late 90s, pensions were returning 12%-13% a year, and had been for years, due both to powerful bull markets in both stocks and bonds. Actuarial liabilities - the assumed rate of return - was generally between 8% and 8.5%, which had been the returns for the prior 50 years from a 60% stock / 40% bond portfolio. Because pensions were earning way more than their required returns, politicians started lowering contributions to pension plans, thinking the 12%-13% returns would last forever. That way, they could give tax cuts or spend the money on something else.
After the tech bubble and then the housing bubbles collapsed, returns over the prior decade had been awful, such that one could look back 20 or 30 years and see relatively low returns. However, assets were dirt cheap. Stocks were trading at multiple lows that hadn't been seen since the early 1980s. Thus, future returns were bound to be much higher. But many people assumed, like in the late 1990s, that the recent past would repeat itself forever. Instead, we had a powerful rally, and pension plans have earned returns of 11%-13% per year since 2008.
There are going to be bankruptcies in some public pension plans, no doubt about it. And there need to be some reforms. But it is not as dire as some people proclaim. That's how you get the $4 trillion liability number tossed out in the public domain.
