Public pensions survived the Great Recession. They will survive coronavirus, too
By Ted Toppin, PECG’s Executive Director
April 19, 2020 Special to The Sacramento Bee (tiered subscription)
For most Americans these days, timing is everything when it comes to retirement.
At the moment, it looks like those who recently retired or who are on the cusp of retirement may have picked a bad time to be born. For them, the steep drop in the investment markets caused by the coronavirus pandemic came at just the wrong moment.
History tells us that the markets will recover and that cycles of ups and downs are inevitable. But under a retirement-security system that relies upon individual accounts – 401(k)s – many of those whose retirement coincides with a down cycle will not be around long enough for their savings to fully recover.
There is a way to flatten to curve. They’re called pensions – collective retirement savings systems into which workers of all ages and their employers contribute and which have professionally managed, diversified investments. They are built to withstand the extremes of economic cycles.
Those who receive pension benefits during down times receive no less income. Those who receive benefits during boom times receive no bonus. That’s what flattens the curve.
Regrettably, fewer than 5 percent of private-sector workers today are able to participate in a pension fund.
In the wake of this latest market spiral, one might expect to see renewed public discourse about our national failing to address retirement security. Instead, what we’ve seen so far is a new round of alarmist attacks on public sector pensions.
It is true that public-employee pension funds, including CalPERS and CalSTRS in California, have seen the point-in-time value of their investments decline. Especially given the uncertainty about the ultimate course of this pandemic and its effect on the economy, it is far too soon to tell how deep and long-lasting the effects on markets will be. But the expectation that investments will experience times of negative returns is inherently built into fund planning.
Unlike personal accounts in which short-term timing is everything, what matters for pension funds is the long term. Over the last 10 years, CalPERS’ annual returns have averaged 9.1 percent. Over the last 30 years, it’s been 8.1 percent – and, remember, that 30-year period includes the disastrous financial meltdown of 2008, during which the S&P 500 fell by 44 percent over two years.
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