Costs and liabilities of US public pension systems in a low-return environment

Author:

Chen GangORCID,Matkin David,Kang Hyewon

Abstract

AbstractIn recent years, a growing number of capital market professionals have projected a low-return environment in US investment portfolios – where returns in most asset classes are expected to drop below historical rates. While these specific forecasts may not fully materialize, it is natural for cyclical investment markets to go through extended periods of lower returns, creating significant risks for public pension systems which rely on investment returns to sustain their long-term solvency and offset budgetary contributions. This paper uses a simulation method to examine the long-term effect of a low-return environment on the unfunded liabilities and contribution costs of US public pension systems while considering the moderating effects of asset allocation strategies, amortization approaches, and contribution policies.

Publisher

Cambridge University Press (CUP)

Subject

Organizational Behavior and Human Resource Management,Economics and Econometrics,Finance,Organizational Behavior and Human Resource Management,Economics and Econometrics,Finance

Reference46 articles.

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5. Vanguard (2017) Vanguard economic and market outlook for 2018: rising risks to the status quo. Available at https://pressroom.vanguard.com/nonindexed/Research-Vanguard-Market-And-Economic-Overview-120417.pdf.

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