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FA Center: The reason underfunded pensions are a disaster waiting to happen

While most corporate employers shifted from pension plans to 401(k)s after the latter’s creation in the early 1980s, governments still offer pensions to many employees.

And those pensions have left retirees and taxpayers in a bind that has fueled political battles while continuing to en rich investment consultants and managers: Too-optimistic estimates of market return, which determine how much governments must pay to fund the balance, have left many plans massively underfunded even as the advisers who managed them received huge fees.

What’s left? A disaster waiting to happen.

The money to pay future retirement benefits to government workers such as firefighters, policemen, and teachers comes from two sources: contributions made by governments to the funds — that is, by taxpayers — and investment growth.

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