Knowing I'd believe.
You knew you'd never keep.
Those lyrics are ripped from the early '80s band Naked Eyes' hit song "Promises, Promises."
I use the word ripped, not because it's a term used in the music business, but because of its more common meaning, as in ripped-off.
Because that's what we've been - ripped off.
This time, which has been going on for a long time, I'm talking about how grossly underfunded both private and public pension funds are, and how we'll all suffer the consequences.
I'm going to strip out the mumbo jumbo so you see the truth with your own naked eyes.
Retirement is getting further and further away for most Americans. And if they get there, they may not be reasonably compensated by the pension plans they thought they were paying into along with their co-payers, their private and public employers.
That's because a lot of those co-payers aren't paying up.
And that's only part of the problem...
Here's the other, even more insidious, naked truth.
The investment return assumptions inherent in pension plans' calculations are so unrealistically high that the chances of funds ever meeting future obligations, or "promises," is halfway between slim and none.
Don't worry, I'll come back to the co-payers not paying up. But first let's talk about assumptions (as in, making asses out of you and me).
Pension Plans are Based on Unrealistic ProjectionsThe average assumption in the great majority of pension plans is that their assets will appreciate at 8% per year. Now, with compounding, that's a really great deal.
Too bad the actual hand we've been dealt, courtesy of a no-interest rate (actually its closer to zero) Federal Reserve policy, for years now (and rammed-down low rates for years prior, thank you Big Alan Greenspan, with his goofy Ayn Rand hat now sitting in a corner facing backwards somewhere; or at least he should be), makes fixed income returns impossibly low. Low to the point that the "bond" portion of plan asset portfolios are causing the hole they are all slipping into to get bigger and bigger.