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To pension funds that they are leaping back it turns out.
-- to hedge funds according to today's Wall Street Journal so too much risk if you're retiree out there or maybe a Smart investment plan.
-- -- David Crane and his former economic advisor if you -- Governor Arnold Schwarzenegger so the story money investing section of journal says the pension funds here.
Or leaping back into hedge funds.
What do you make -- -- I guess they need to make up -- some losses over the past few years is is the way to do it.
Well yeah they do have to earn their investment return assumption which is very high seven -- quarters to 8% per annum so they have to invest in things that will come close to generating that.
Hedge funds and of themselves are not necessarily -- -- or riskier than other investments if their if their properly hedged and structure.
Well that's the thing -- because longtime GU you've had this knee jerk reaction all -- -- my money they're throwing it away into a hedge fund.
And I was looking at the California numbers and and even calpers has come back and made a nice.
Those eighteen and a half percent over the first three quarters of its fiscal year so it's made a nice comeback I don't know how much of that.
Is because of hedge funds but maybe these -- -- to get back on track -- investor money.
Well -- let me make two comments for a fall.
It's not that the retirees have to worry about the investment it's the taxpayers does this taxpayers underwrite the retirement benefits so.
The people that should be wondering about pension funds and how the investor money or are taxpayers.
Yeah it it all pension funds have done better over the last few years.
But they'll need to earn roughly 20% brand and just for the next five years roughly the same rate that they're earning -- just to get back to even.
We'll -- scalpers for example lost the total of 29%.
In their fiscal -- is no way to know nine so it is that it's at a we've been talking all week long about entitlement programs and what have you been for people planning for retirement.
The idea that these these pensions are going to be there or not is that a serious question we should be looking at.
And you know if you -- thinking about retiring 1015 years down the line would you be confident that the money will be there.
The and if you're talking about people who don't have defined benefit plans then it's a different question for those that have defined benefit plans if you're an employee of the state of California.
Your retirement money will be there are no matter what -- because this state is obligated to make that payment no matter how well or how poorly the pension funds have done.
So those those employees can feel secure.
People without those sorts of plans.
Of course feel less secure.
Right but what about the states who are funding those plants.
State governments and the pressure that they are under what's being done do you think it to tackle that problem -- released.
Taking the proper steps right now even if the problem is still there broadly speaking.
Not yet -- there are some leaders who are really looking to take the right steps you may have seen the report from the treasurer Rhode Island recently where she dug down.
And really exposed how you -- address this problem.
The problem is caused by not funding the promises when -- made India and -- pension funds get away with doing that because they assume these.
Super high -- return assumptions and therefore put -- too little money so the way to solve it.
Is to make sure you fund -- promise when it's made at the right level.
And these pension funds have been assuming rates of returns that are like 30% higher than invest -- markets historically returned.
-- evaluating her dress that now.
In Califano gonna say how are they doing out there in California which have been kind of the poster child for.
If it can't go wrong it will go wrong after over the last however many years how they doing now out there in California under.
You know new leadership Jerry Brown.
Well they're still not looking to address the pension problem the way it really needs to be addressed -- -- California is not as bad off as of as a number of other states who are in much worse pension.
Positions in California is.
And the state legislature and the governor sort of still dancing around this problem I think they have to take -- cue from people like.
The treasurer Rhode Island -- rest mapped out.
-- serious plan for how to address this problem while maintaining retirement security for government employees.
I mean you have to remember current and future government employees are also victims of this underfunding.
If they want to see their own compensation rise in the future or jobs be there -- As well as citizens getting the services they did -- -- they need yeah and have their taxes go to their current services they have to reform these pension plans -- way.
For example that treasure suggest they have the -- -- when you think about -- David it's it's always good to have you on the show David Crane from out in California thanks offer coming up.
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