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States Want Public Pensions to Assess Risks of Next Downturn

May 25, 2018, 7:15 PM

Colorado and Minnesota recently joined other states in moving to require public pension plans to undergo stress testing.

Stress testing is an analytical tool that allows plan trustees to see how their plans will perform under a variety of potential economic scenarios, including severe market drops and declines in state revenue. It’s the same kind of assessment that many large banks must do under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“Poorly funded plans face the risk of unfunded liabilities and high costs, and in some cases, insolvency under scenarios where investment returns are lower than expected,” according...

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