The Benefits of Stress-Testing Your Pension

The Pew Charitable Trusts have released a report recommending public pensions conduct tests to anticipate their viability during market downturns on a regular basis. 

The Pew Charitable Trusts analyzed 10 state pension systems (Maryland’s pension system was not one of the systems studied) and developed a set of broadly applicable recommendations for public pensions systems and their ability to survive economic volatility.

About half of Maryland’s counties participate in the State’s pension system, and all counties make payments toward the State’s teacher pension system as part of their support for the State’s local school boards.

The Pew Charitable Trusts study outlines warning signs for public pensions, and recommends certain funding structures, based on examples, to help improve public pension resiliency.

From Pew:

Uncertainty over long-term economic growth and the fragile nature of public pension funding demand policy solutions that manage volatility and lower state costs. The problem is only going to worsen as more members of the baby boom generation retire and pension money is paid out of state treasuries faster than it is coming in. Stress testing gives policymakers a clearer sense of how future economic downturns could affect pension finances, critical insight when setting policies that protect taxpayers and retirees.

For more information, see Stress Testing Can Help Troubled State Public Pension Funds, a study from The Pew Charitable Trusts and Why Our Public Pensions Need Stress Tests from Governing.

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