Archive for July, 2011
How Realistic Are 8% Returns for Pension Funds?
Mebane Faber, the portfolio manager at Cambria Investment Management, has published a white paper which addresses the current underfunding of pension funds and the possibility of pension funds underperforming not only targeted returns of 8% but also the risk-free rate of 4%. The reason for this underperformance is that pension funds are decreasing their exposure to bonds and increasing their exposure to equities and other illiquid assets. While this new asset weighting has the potential to generate targeted returns of 8%, it also has the potential to generate negative returns due to increased return volatility.
For Some States, It May Be OK to Cut Back on COLA
The New York Times reported on its website that lawsuits filed in Colorado and Minnesota over the reduction in the cost-of-living adjustments (COLA) for public pension payments have been dismissed. These court rulings may encourage other states to reduce COLA adjustments to assist in balancing their respective state budgets. Previously, California and West Virginia tried to reduce COLA but appellate courts ruled against the ability to do so.