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Comment by jltsiren | Hacker News Reader

Individuals saving for retirement must deal with the risk that they live to an old age and their savings must last for decades. Pension plans have a higher safe withdrawal rate, because people on the average have average lifespans. When a plan member dies early, their remaining contributions can be used (partially or in full) to fund other members' pensions.

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Really good comment and fair point

But mortality credits (pooling) don't solve the math of the discount rate - they add 100 - 150 basis points of reduction so retarget to 5.5% vs 4% if generous

So they are still structurally designed where they HAVE to allocate towards risk to meet their targets which is at core of issue

It feels like you're missing the whole point of the whole article, which is that treating public pensions like a bunch of 401ks misses the opportunity to invest all that money in something that benefits the retirees collectively. I'd rather retire on 4% from a bond to improve the school my grandkids go to than 5.5% from a PE firm that intends to "more efficiently manage" the retirement home I live in.

And a pension fund can be in a more tax advantaged situation.

But that does not justify the numbers we actually see being used.

Only taxpayer funded defined benefit pension plans get to use 7%+. Because they have the power to use future taxpayers’ money to pay for underfunding/underperformance/corruption from the past. And obviously, politicians that would choose to increase taxes today for something that could but punted to the future would lose elections.

The Pension Protection Act of 2006 mandates that non taxpayer funded defined benefit pension plans use discount rates from high grade corporate bond yield curves, which are much lower.

https://www.irs.gov/retirement-plans/pension-plan-funding-se...

The power to use future taxpayers money isn't justification for doing so.

Yet that is the modus operandi of governments worldwide that need to secure the votes of the old. There is no reason the US explicit has different rules for taxpayer funded and non taxpayer funded defined benefit pensions. They are the same liabilities, the same cash flows, the same probabilities, just different political entities on the hook.

Even some non taxpayer funded defined benefit pension plans are more privy than others, depending on the political power of their beneficiaries.

https://archive.is/CJefA

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