Financial Analysts Journal

The Case against Stock in Public Pension Funds

  1. Lawrence N. Bader
  2. Jeremy Gold

The case against equity investment by U.S. corporate pension funds has been well documented for a quarter century. The public sector has ignored or dismissed that case because of differences between taxation and accounting between the private and public sectors, the differing interests of shareholders and taxpayers, and the presumption that public plans last forever. Despite these differences, shifting public pension fund investments from equities to bonds adds value for local taxpayers. It also minimizes the risks of intergenerational taxpayer conflicts, undercharges to employees’ compensation packages for the value of the pensions, employee claims on pension surplus, and higher governmental borrowing costs.

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