After a nine-year run of economic growth and stock market gains, there is growing speculation that the U.S. may be due for another recession. And without sufficient pension fund assets on hand, many states are more vulnerable than ever to the effects of an economic downturn.
Policymakers need to know how their pension funds will perform in the next recession and what the impacts might be to already strained government budgets. A rigorous reporting practice called stress testing can illustrate how an economic downturn could affect pension funding and, in turn, states’ ability to fund core government services such as schools, public safety, and infrastructure.