Milwaukee Seemed a Rare Pension Success. Then It Was Downgraded

At first glance, Milwaukee, Wisconsin’s retirement system might seem like a rare public-pension success story: It’s nearly fully funded, meaning the city has socked away enough to cover almost all the benefits promised to employees.

But that may be an illusion, created by excessively optimistic forecasts for what it will make on investments in the years ahead. Moody’s Investors Service downgraded Milwaukee’s bond rating late March 12, saying its investment-return assumption “masks the city’s true net pension liability” and is “unsustainable.“

Milwaukee—whose plan is 92 percent funded, by official count—reaches that conclusion by assuming annual investment returns of 8.5 percent, ...