Can REITs Rescue Retirement Funds?



Recent news would lead you to believe that employment is up, rates are steady, and confidence in the government is soaring. The real truth is that hedge funds have so robbed pensions that even Bloomberg described them as “mere wealth-transfer machines”.

The country is sick, and pension funds are running the fever. Case in point: in 2015, Calpers (the California Public Employees’ Retirement System,), earned only 2.4%, Earnings in 2016, of 0.6 percent, barely turned the corner to profitable. But at least the fund didn’t hit bedrock like it did in 2009, at the bottom of the “bubble”, when holdings fell to 24.8 percent.

Under Federal pension law, if a multiemployer pension plan is in critical or endangered status, it must notify beneficiaries, the bargaining parties, participants, the Pension Benefit Guaranty Corporation (or PBGC, which insures the plans), and the Department of Labor. The PBGC insurance deficit now stands at about $59 billion, and is projected to become insolvent in 2025 without serious help.

Where plans are critical, benefits may be cut back, and lump-sum distributions put on hold. Where plans are critical and endangered, the fund itself must devise a way to restore the plan to its former financial wellbeing.

In 2016, fully 68 public pension plans were in critical and declining status, according to U.S. Department of Labor. A total of 89 were endangered.

In 2017, in the newly fledged Trump administration, things are still rough. Forbes describes this as “an emerging financial crisis”. One of many, but in the case of pension funds the economy is facing off against 10 million workers who could likely not find jobs even if they were young and strong enough to do them.

Which multiemployer pension plans are threatened? According to Milliman Consulting, they are 1,300 policies covering the venues of construction, entertainment, health care, manufacturing, retail food, and transportation. Liabilities ($600 billion) exceed assets ($450 billion).

Back to Calpers, which has traditionally invested lightly in real estate, even though a June 2016 study showed that REITs (Real Estate Investment Trusts) outperformed 11 other assets by providing average net returns of about 12 percent annually from 1998 to 2014. This, on top of 0.51 in investment costs as compared to hedge funds at double the cost and half the returns.

It’s no surprise that Calpers may not survive the market’s demolition derby, and pensioners may find themselves looking for jobs at McDonald’s. Land, or real estate property, is always a good bet. Real estate never shrinks. Given that, just when did America’s love for real estate fail? When the hucksters talked us into investing in other types of wealth strategies without telling us that the wealth would be all theirs.

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