Things Don't Always Go Up

Municipalities are relying on rather unreasonable expectations of return it seems.

March 3 (Bloomberg) -- Philadelphia's $4 billion pension deficit is causing the city's retirement-fund manager to shun Treasuries at a time when the Bush administration needs him most.

Yields on 30-year U.S. bonds that fell to a record low of 4.10 percent this year are forcing pension funds to favor equities, corporate debt and commodities in an attempt to cover unfunded liabilities and meet return objectives of about 8 percent. Even the federal government's own Pension Benefit Guaranty Corp. said on Feb. 19 that it plans to shift $15 billion to stocks from debt.

``The reality is there's not a lot we can do'' other than buy high-risk securities to close a pension shortfall in a short period, said Chris McDonough, chief investment officer of the Philadelphia Pensions Department. The sixth-largest U.S. city will probably also issue debt, he said.