I had a longer bit in there on the duration of pension liabilities, but it ended up being too digressive. I took way too long to learn about duration, and now I have the urge to apply it in all sorts of weird situations. (Just wrapped up another piece for the newsletter on how minimizing working capital and signing lots of long-term contracts is equivalent to borrowing short and lending long — every big company is turning itself into a bank in order to fund levered buybacks!)

I don’t know how public pensions come up with their return estimates, but they are indeed crazily high. The scariest story there is a headline I saw a while ago about an NJ plan, which announced that it had saved tens of millions of dollars per year by… raising its estimated rate of return!

It would be wise to put pension funds under some authority with access to the Fed. The “good” news, politically, is that there are lots of tiny underfunded pensions, many for policemen and firefighters, and some of those beneficiaries are, or were, elected officials! If someone got elected chief of police for a few decades, he’s probably a popular guy, and if his retirement checks start bouncing, that news will make it to the governor very fast. Getting it from states to the Federal level is harder, but it’s a step.