Great article–I’m glad to see the mainstream media is finally waking up to this looming train wreck.
CA is especially guilty of overstating expected pension fund returns because it lowers today’s necessary taxpayer and public sector union members’ necessary annual contributions. It is just one more way CA politicians (and voters) think short term instead of long term.
By assuming future ROR on investments will be 7.5 – 8 percent when they will more likely be half that means that today’s contributions should about double. That would blow up our already troubled fiscal situation.
The unions claim that historical rates of return justify today’s fantasy number. They point to three decades of strong investment returns, conveniently starting with 1980 when the DJA hovered around 1000. They won’t use the past 5 years where it has declined, or the past 10 years where it has barely grown.
We are in a new world of low returns and need to adjust our assumptions about the future.