Moody’s, which in 2013 began using a lower rate than governments do to calculate future liabilities, has estimated that the 25 largest U.S. public pensions alone have $2 trillion less than they need. Cincinnati and Minneapolis are among cities Moody’s has since downgraded.
The credit-rating company said in a report that the shortfall in Dallas’s police and firefighters’ pension system will more than triple to $4.7 billion because of the accounting-rule shift.
“You’ll probably start to see a lot more negative outlooks,” said David Ashley, who helps oversee $10 billion of munis at Thornburg Investment Management in Santa Fe, New Mexico. “That’s on the horizon.”
The new reporting requirements are taking full effect just as stock and bond markets sputter as the Federal Reserve prepares to raise interest rates for the first time in nine years.
The California Public Employees’ Retirement System, the largest U.S. pension, this week said it earned just 2.4 percent last fiscal year, one-third of the annual return it projects. The California State Teachers’ Retirement System, the second-biggest fund, gained 4.5 percent, compared with its 7.5 percent goal.