The Washington Post had a front page story reporting on the fact that most public and private pension funds are now hugely underfunded as a result of the plunge in the stock market. It reports that they had just assumed that their funds maintain the same rate of return as they had over the prior two decades. The failure of the funds to maintain the same rate of return was not just bad luck. It was virtually inevitable that return would flounder as people who knew arithmetic tried to explain. The high returns of the 80s and 90s were the result of a run-up in price to earnings ratios. Given the high price to earnings ratios of this decade, it was not plausible that the markets could provide comparable returns going forward. The shortfalls in these pension funds was entirely predictable. Unfortunately, the people who got 6 and 7 figure salaries to manage these funds are unfamiliar with 3rd grade arithmetic. As a result, workers are likely to see lower pensions. Because the Post and other media outlets cover up for the incompetence of pension fund managers, most still hold their jobs.
--Dean Baker
