Wednesday, Aug. 10, 2011 | 2:03 a.m.
Lost among the finger-pointing about the recent downgrading of the United States and the steep decline in the stock market is the far greater threat posed by the fact that the biggest losers are likely to be state and local pension funds that depend on assumed rates of return on stock investments to fund pension liabilities.
The sad fact is that in recent years, cash-strapped municipalities have made unrealistically optimistic assumptions about what they expect to earn to minimize the amount of funds needed to make their pension plans whole. Nevada and California are two states likely to feel the effects of the trillion-dollar decline in U.S. equity markets the past week.
The big question, which no one seems willing to address, is how these strapped state and local governments will make up for this deficit.