No, it was the Pension Protection Act of 2006, and the accompanying adoption of International Financial Reporting Standards (IFRS) that made DB pensions a nonstarter. In conjunction with the advent of nearly free equity index funds.
The former made it so no more fantasy discount rate assumptions could be used to understate liabilities by 30%+. The latter made it so paying the costs of active fund managers was a waste of money when you get the same results with a 0.03% to 0.06% expense ratio passively managed fund.
Again, discount rate assumptions don't directly affect the cost of the pension. The liabilities will be what they will be. Returns will be what they will be, though of course assumptions impact the amount of risk you take as you attempt to achieve the assumed return.
And even with passively managed indexes the pension fund will win. Who's paying fewer basis point for this index fund, you or the billion dollar pension fund? If they achieve similar results then still the pension will have you beat.
I think we are referring to costs in different contexts.
If I may switch to a different term, the outgoing cash flow will be what it will be, the question is where and when and from whom is the incoming cash flow?
In the context of this thread, apparently some of it will be from people who pay parking meters for the next 70 or so years. Is that what the plan was when this cash flow was promised to voters and recipients 20, 30, 40 years ago?
>In the context of this thread, apparently some of it will be from people who pay parking meters for the next 70 or so years. Is that what the plan was when this cash flow was promised to voters and recipients 20, 30, 40 years ago?
I don't know about the City of Chicago but most pensions were pay-as-you-go til the 80s or 90s, so the voters then probably agreed that they should pay benefits for retirees then and future citizens and taxpayers should pay for benefits now. The advent of the pension fund means that it's now more common for taxpayers today to set aside a separate fund from which some or all future benefits will be paid. Just a different way of doing things.
Related to the index funds, although a lot of people lost quite a bit of money during the dot-com bubble popping, that period also democratized and made buying and selling stocks/index funds/other mutual funds much less expensive and accessible.
401(k)s had been around for a while but it was probably around then that online trading was really normalized as opposed to something that investment professionals largely handled for you out of sight out of mind.
The former made it so no more fantasy discount rate assumptions could be used to understate liabilities by 30%+. The latter made it so paying the costs of active fund managers was a waste of money when you get the same results with a 0.03% to 0.06% expense ratio passively managed fund.