States Risk Bigger Losses to Fund Pensions

[JCMach1]

Now, pensions are being re-funded with bonds after the stock losses of recent years. Once again, we are transferring our debt to future generations.

:grr:




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Many state and local governments, facing ballooning pension promises to police officers, firefighters, teachers and other public employees, are rushing to sell bonds to cover the shortfall. That strategy has sometimes backfired in recent years, leaving taxpayers on the hook for even more debt.

States and municipalities are drawn to bond sales because they bring instant cash, easing budget pressures without further tax increases or reductions in retirement benefits.

But critics say the bonds could prove costly for some officials using them — and for the local taxpayers. The cities and states have to pay a fixed rate of interest on the bonds, and are essentially betting they can earn a higher rate of return by investing the proceeds in their pension funds.

But recent investment losses have already left some cities and states on the hook for a mounting debt, covering not just the retirement money for their workers but also the interest on the bonds. New Orleans, Pittsburgh and New Jersey have all placed losing bets in recent years....
http://gainesville.com/apps/pbcs.dll/article?AID=/20031011/ZNYT02/310110311

[jiacinto]

1. They should get into stocks

and not into bonds because rates are going to raise eventually. When they do the value of their bonds will fall.

[JCMach1]

2. Actually they are issuing bonds... many of which are

at relatively high interest rates for today's market.

[jiacinto]

3. Ok

But their values will fall when rates rise again.