Monday, January 30, 2012

Pension return denial

Quants at Soc Gen conclude that most S&P 500 pension funds are operating in a state of denial based on their return assumptions.  As I noted before, the math simply doesn't hold up.  You can't get a 7.5% return and have reasonable assumptions about equities.

Key quote:
So why are plan managers taking such an optimistic view? Doing otherwise would require higher pension contributions from both employers and employees. That is painful. “But rather than accept the notion of lower returns and adjust behavior accordingly, the path of least resistance appears to be total denial,” the SocGen analysts write. They properly add that neither CEOs, fund managers nor politicians have much incentive to act differently.
Via Wall Street Journal Blogs