PGIM CEO Eyes Public Pensions as Next Financial Crisis

Hunt points to funding difficulties due to lawmakers setting obligations.

Troubles with funded ratios, reforms, and the en masse retirement of the baby boomer generation waiting in the wings, it appears that the next financial crisis could be the collapse of the public pension system, according to PGIM CEO David Hunt.

“If you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list,” Hunt told Bloomberg, adding that a downturn under a local tax revenue decline and a higher unemployment rate will put more pressure on states and municipalities to meet benefit obligations, which he said PGIM is “worried about.”

According to a report by the Center for Retirement Research (CRR) at Boston College, US public pensions only had 71.8% of assets required to meet obligations to their retired members as of fiscal 2016.  Should the funds return 7.6% annually, the CRR expects them to be at around 73% in 2021.

In comparison, corporate pension plans tend to fare better than public ones. According to Wilshire Consulting, the average US corporate pension plan was 88.4% funded in January.

States such as Illinois, New Jersey, and Kentucky have all had issues with their funded liabilities, with lawmakers continuing to struggle to find a solution to a potential crisis.

Hunt, whose firm manages $1.2 trillion worth of assets for Prudential Financial, noted that while it’s tougher for public pensions to stay funded due to lawmakers setting the obligations for fund managers to meet, he suggested they take a page out of the corporate pension playbook and “find ways to minimize the deficit and to take risk gradually off the table” to meet their promises.

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