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Costs and liabilities of US public pension systems in a low-return environment

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  • Chen, Gang
  • Matkin, David
  • Kang, Hyewon

Abstract

In recent years, a growing number of capital market professionals have projected a low-return environment in US investment portfolios – where returns in most asset classes are expected to drop below historical rates. While these specific forecasts may not fully materialize, it is natural for cyclical investment markets to go through extended periods of lower returns, creating significant risks for public pension systems which rely on investment returns to sustain their long-term solvency and offset budgetary contributions. This paper uses a simulation method to examine the long-term effect of a low-return environment on the unfunded liabilities and contribution costs of US public pension systems while considering the moderating effects of asset allocation strategies, amortization approaches, and contribution policies.

Suggested Citation

  • Chen, Gang & Matkin, David & Kang, Hyewon, 2021. "Costs and liabilities of US public pension systems in a low-return environment," Journal of Pension Economics and Finance, Cambridge University Press, vol. 20(2), pages 169-186, April.
    • Handle: RePEc:cup:jpenef:v:20:y:2021:i:2:p:169-186_1
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    Cited by:

    1. Trang Hoang & Craig S. Maher, 2022. "Fiscal condition, institutional constraints, and public pension contribution: are pension contribution shortfalls fiscal illusion?," Public Budgeting & Finance, Wiley Blackwell, vol. 42(4), pages 93-124, December.
    2. Raluca Andreea GHETU & Cristina-Simona CĂPĂȚÎNĂ & Petre BREZEANU, 2021. "The Evolution Of Fiscal Pressure In Developed E.U. Countries And Its Determinants," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 30(2), pages 239-249, December.

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