San Diego pension fund trouble

An article in EconBrowser tells an interesting and probably worrying story of an employee pension fund for the City of San Diego, USA.

In short, a legislation was passed, that used any fund's profit above 8% to increase the final payments to the employees, without any requirement to invest additional money into the scheme. For years it worked quite marvellously, since markets performed exceptionally well and the fund made 8%+ easily. However, when the profits went down, it was realised (surprise, surprise) that the scheme had accumulated a substantial amount of liabilities without proper cover.

Of course, commissions were formed and investigators read the papers. And maybe someone will be punished in the end, although I doubt it very much. But the really concerning thing is if the practice is worldwide spread - and maybe your pension fund managers are doing something similar with the "surplus" income that your fund generates during the "good" years.

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