U.S. government pension funds currently have the lowest cash holdings since the 2008 financial crisis, and corporate pensions’ cash holdings are barely above the 13-year low they hit in 2021, which could spell disaster in the event of a financial crisis.
Over the past 15 years, public pensions had 2.45% cash holdings and private pensions had 2.07% on average, but those have dropped to 1.9% and 1.7% respectively, according to The Wall Street Journal. The figures were higher even in 2008, when some retirement funds had to sell at inopportune times to make payments; one economist told the Daily Caller News Foundation this could threaten Americans’ pensions in the event of a financial crisis, which could force funds to sell off assets at low prices in order to continue payments, resulting in a massive loss in value.
“The insolvency of many pensions funds, which was caused by making promises that could never be paid, will eventually rear its head in a financial crisis — it is just a question of when the music will stop and who will be left without a seat,” E.J. Antoni, research fellow for regional economics at The Heritage Foundation, told the DCNF.
Keeping too much cash on hand can lower returns for pension funds, but keeping too little can end up forcing companies to sell assets at unfavorable prices just to keep cash on hand for payments, according to the WSJ. Low interest rates in recent years drove fund managers to exchange liquid cash for higher risk assets, failing to anticipate that rates would eventually rise, according to Antoni.- READ MORE