pension liabilities: IHE article

[polly_mer]

https://www.insidehighered.com/quicktakes/2020/08/20/unfunded-pensions-increasing-universities-risk-moodys-says

[clean]

Certainly pensions liabilities are an issue, especially for those with Defined Benefit Plans (traditional pensions).

Note that there are a lot of issues with pension fund accounting. For one thing you have to get an actuary to estimate the length of time people will survive. Then you have to take the Present Value of those obligations. The problem here, as touched on by the article, is that the interest rates are so low, that the Present Value of those future payments are high.   Then there is the rate of return that the assets can earn.  IF the return is low (like because the interest rates remain at record lows), then the assets dont  enjoy The Miracle of Compounding that higher rates provide.  (note  that this is not linear.  A 5 % return for 20 years does not produce 1/2 the return of a 10% return, but only 39% of the return (It is a power function, not linear). 

So because of the historic, and continuing low rates:
a. The Present Value of the pension Obligation is HIGH
b. The return generated is LOW
and C
people just refuse to die!

("Despite the high cost of living, it still remains popular"). 

I predict, (or echo predictions) that states/universities will cut benefits, raise contribution levels for employees, and IF they are forced to and able, they will cancel the defined benefit programs (as many corporate firms did some time ago).  IF you are not taking advantage of additional saving opportunities from IRAs (Roth or traditional) or 401K/403b or 457 plans, your retirement eggs may all be in one breaking basket!

[Vkw10]

I opted for the defined benefit pension instead of defined contribution plan when I moved to this institution because the pension plan was well funded. The plan's trustees have minimized unfunded liabilities by gradually increasing contribution rates and instituting tiered benefits based on hire date. I'm actually pleased that my contribution rate just increased, because a properly funded pension plan will send me a monthly check even if I live to 103 like Grandma Maude, instead of barely making three score and ten like Gramps Johnnie.

I want to use my 403b money for theatre tickets, not ramen.