Pensions Ditching Treasuries, Setting Themselves Up For Fall

Well, we are now seeing the beginning of the collapse of pensions around the nation, it's just not visible yet.

The pensions are dumping Treasuries in favor of equities, and probably other more volatile investments, in order to get better rates of return, because interest rates are so low.

The reason that this is happening is because they are underfunded, and so need to chase higher rates of return:

Philadelphia's $4 billion pension deficit is causing the city's retirement-fund manager to shun Treasuries at a time when the Bush administration needs him most.

Yields on 30-year U.S. bonds that fell to a record low of 4.10 percent this year are forcing pension funds to favor equities, corporate debt and commodities in an attempt to cover unfunded liabilities and meet return objectives of about 8 percent. Even the federal government's own Pension Benefit Guaranty Corp. said on Feb. 19 that it plans to shift $15 billion to stocks from debt.

"The reality is there's not a lot we can do", other than buy high-risk securities to close a pension shortfall in a short period, said Chris McDonough, chief investment officer of the Philadelphia Pensions Department. The sixth-largest U.S. city will probably also issue debt, he said.

Fixed-income holdings at 1,100 funds fell to 23 percent in 2006 from 27 percent in 2003, said Dev Clifford, a consultant at financial market research firm Greenwich Associates in Greenwich, Connecticut. Results of a survey covering 2007 will be released this month and likely show that funds own an even smaller percentage of bonds, he said.

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This is how a lot of pensions went pop as a result of the dotbomb bust.