“Public Pension Funds Roll Back Return Targets”
The article under analysis was published in The Wall Street Journal, one of the most important and influential economic journals in America. The title of the article “Public Pension Funds Roll Back Return Targets” perfectly reflects the main theme that is discussed in the text. The article describes the difficulties faced by many public pension funds in the USA. The article starts with a multi-colored table that shows how the expected rate of returns for retirement systems shifted over time. It is obvious that the returns of public pension funds are steadily declining and the text of the article serves as a proof and explanation to the table. The author starts from arguing that these funds have the worst rates since the 1980s. However, Martin does not pay much attention to the causes of this problem – he only says that the country should partially blame the economic crisis and the aging population. The author focuses on the current situation and describes how different pension funds reacted to this problem. Although the general forecasts are quite pessimistic, the author mentions some positive aspects of “moving expectations below 8%” (Martin). He argues that “lowering assumptions fortifies fiscal health” of the funds (Martin). In addition, at the end of the article he quotes Todd Clark, chairman of the Houston firefighters’ fund who believes that such a decline will not last for a long time and some improvements are possible.
The article proves that the thorough research of economic conditions is the only reliable method for making any forecasts concerning the future. Cost-benefit analysis is the primary economic tool and is used to quantify benefits and costs in a clear, systematic and rational way. The public pension funds take into account a great number of difficulties that they are unable to overcome under the current conditions and choose a realistic approach. They drop their assumed returns to about 7.5%. It is not only economically just, but also the only way to remain in the frames of ethical business. Forecasting higher returns could be treated as an attempt to influence the public opinion and gain more clients in comparison to other competitors who announce lower returns for the following years.
Efficiency is another important economic tool that plays a significant role in the events described in the article. Pension funds, both public and private, are often the largest institutional investors in the market. This fact is especially true for the United States of America where Federal Old-Age and Survivors Insurance Trust Fund invest around 2645 billion dollars in assets. Efficiency of such significant market players is critical for the economy of the whole country. Therefore, efficiency of the pension funds is absolutely necessary for the sustainable development of the economic system. As the key purpose of these funds is not to make rapid dramatic returns, but generate stable growth over the long term, dropping the forecasts lower than 8% is obviously not a good thing, but there is nothing critical for the state in this action. People should not make any hassle conclusions about their future pensions as the events described in the article would not lead to lower pays to the public. The changes occur not in the pension guarantee schemes, but in the approach of their accumulation. “Realism,” said Brian McDonnell, managing director for pension consultant Cambridge Associates, is “creeping in” (Martin). As it was mentioned before, such a realistic approach could bring even positive results.
As the majority of pension plans function according to “defined benefit” schemes, by which a fund offers future retirees a certain amount of money per period, it is obvious that threat assessment is of great importance for the pension funds. The reliability and safety of their investments affect a large numbers of people, thus public pension funds are often one of the most heavily regulated institutions in the country. Therefore, they must critically survey the current economic situation and be prepared to any threats that may lower their efficiency. In case of unfavorable economic conditions, such as the ones mentioned in the article, these funds should quickly adapt as well as decisions aimed at stabilizing their returns should be made. It is clearly evident from the text that many American public pension funds acted in this way. For example, in Boulder, Colorado, the authorities tried to earn additional $1,7 million in pensions payments by stopping “planting tulips in most areas and shifting to less expensive wildflowers” (Martin). Although this step does not seem to have any state-level significance, one of the basic economic principles is that the financial condition of the country as a whole is made up of the assets of its regions, companies, individuals, etc. That is why the plan of Colorado city is a step that will definitely have certain influence on the efficiency of the public pension funds.
To conclude, the article “Public Pension Funds Roll Back Return Targets” deals with a very important issue for the US economy. The fact that public pension funds dropped their expected returns lower than 8% may not have immediate direct influence on the economy, but it is a problem that is worth solving in the long run. This article is a bright illustration to the usage of such basic economic tools, as efficiency, economic surveys and forecasts, trust as an important component of economic relations, etc. Analyzing this article through the lens of business and daily life of common Americans allowed drawing important conclusions about the general trends of the country’s economic development.
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