No. of Recommendations: 6
...about pension funds, and the rates of returns that are assumed, and how silly and self-serving the assumed rates had been...Rather to my surprise, the assumed rates have been (except for this past year) on a near-uninterrupted slide since that millennial essay. Maybe some pension managers read the essay? It's a good read for data geeks.
This data geek found it interesting.
I well remember both Mr Buffett and Mr Munger going on about the dangers of pension funds and their wholly unrealistic assumed rates of return -- there was even a line in one of the early-200s Annual Meetings Q&As of these assumptions and the resultant gross underfunding of the plans in the real world representing "financial weapons of mass destruction", an analogy that both Warren and Charlie subscribed to. (What I don't remember for sure is whether it was all US DB plans, or just the large public DB plans e.g. CalPERS that they were talking about.)
But the reference Jim linked indeed shows a roughly linear slide in assumed ROR from 9.4% (up to 10.9%!) in 2000 to 5.8% in 2023. And I think these numbers are all nominal (not-inflation-adjusted) which is even more impressive.
It would be an interesting followup question for the 2025 AM, I think -- particularly as regards public plans, unreferenced in Jim's link.
(FWIW: One of my sons, mid-30s, is employed by a Fortune 100 company represented in the database mungo linked. He (my son, not Jim) asked my help in crunching numbers with the DB pension plan buyout he was offered last year. The math's not the point, but what that offer reinforced to me was I think there's no sign of slowing of the disappearance of DB plans, at least in the public sector. Conversely, I recently looked up what the DB plan is for California civil service employees with the position my Dad retired from in, uh, 1984. It's effectively unchanged over the last forty years, as near as I can tell)
--sutton
