18 April 2024

U.S. Treasury Scrutinizes Public Pensions

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State and Local Finance Office Director Kent Hiteshew appointed the chief investment officer of Maryland's pension fund as a policy adviser who will substantially strengthen the office's understanding of the critical challenges facing a system upon which approximately 23 million Americans depend ... for their retirement security.

State and local pensions now have enough money to cover only 72 percent of their costs, in comparison to nearly 100 percent in 2000. The data from the U.S. Federal Reserve shows public pensions had $4.89 trillion in assets in the first quarter of 2014, the highest on record. But they also had the largest liabilities on record going back to 1945 - $5.03 trillion - and their funding gap has widened since the 2007-2009 recession.

That recession devastated investment returns, the chief revenue source for pensions, while simultaneously forcing states to cut retirement contributions. While investments are gaining and many states have increased contributions, public pensions face a bulge of retirees from the "Baby Boom" generation. Hiteshew's office will study the state of public pensions and help retirement systems evaluate their financial conditions, and it will look into the growing costs of retiree healthcare.

Also on the office's agenda are President Barack Obama's push for more infrastructure financing, including creating a program akin to Build America Bonds, and continued monitoring of the financial situation in Detroit and Puerto Rico.

Build America Bonds were created by the 2009 economic stimulus plan, and the program expired in 2011.The once popular bonds, which were taxable and paid issuers a hefty rebate, lost their appeal when the rebates were cut during congressional budget battles. Issuers have been slow to warm to Obama's proposal of "America Fast Forward" bonds that follow the same model, and which the administration says would be protected from spending cuts.

Hiteshew also intends to help improve liquidity, pricing transparency and financial disclosure in the $3.7 trillion U.S. municipal bond market. The federal government's heightened interest in the market is apparent across many agencies, including the Securities and Exchange Commission.

Click here to access the full article on Reuters.

 
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