COVID-19 Pandemic Puts Squeeze on Pension Plans

The hard choice facing pension managers: more risk or more money?

Pensions and other retirement-benefit programs have long struggled to figure out how to eliminate the gap between the assets on hand and cost of benefits promise to pay in future decades. Bond rates are expected to remain low resulting in fixed-income portfolios returning little. This concern continues to grow as investment returns fall.

The urgency of this issue is only rising amidst the pandemic, pushing retirement-fund managers across the country into action to keep shortfalls from growing. Such shortfalls aren’t a new industry phenomenon. According to Federal Reserve data, even before the pandemic, retirement and pension funds were already short trillions of dollars in assets required to pay future benefits.

Tauzer commented, “I wouldn’t be surprised if they continue to come down more in the next few years.” Lowering return expectations is politically difficult for pension funds because doing so increases expected shortfall between assets and liabilities, which often leads to higher costs for government employers and workers.