Saturday, July 20, 2013

Municipal and state pension plans may have used bad actuarial math for decades -- not just Detroit, but all bond funds


Mary Williams Walsh has a major report on a possible major conceptual error in the way municipalities have estimated their pension obligations (income and payments) over the years.  Although immediate attention is drawn to the problem by the sudden Chapter 9 bankruptcy filing by the city of Detroit, the issue has been known for years, particularly since a dissertation was submitted on the area Jeremy Gold in 2000.  The link for the New York Times story is here

Brad Plumer has a story on the Washington Post Wonkblog that boils all this down to one problem: more retirees, fewer workers, link here
                                    
The implications, perhaps like a next chess move, should be obvious.  Is the math right for the millions of private pensions, even those which are closed but still paying out (like mine)?

Could the value of many mutual bond funds (especially tax-free municipals) be further undermined on Wall Street as the implications of this article get out?


And it is not completely clear that Detroit can legally avoid putting pensioners first in line in the current filing.  The applicable word is sacrifice. 

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