When you adjust for inflation, the Dow has returned just under 1% per year over 80 years. Worse, there are 30 year spans of 0% returns, and spans of about 20 years with negative adjusted returns. If you reinvest dividends, the numbers would be more favorable.

The assumption of most pension plans is that the market returns 8% annual returns on average and that inflation only eats away 2% of that. It is difficult to draw the line between optimistic assumptions and outright lies by fund managers. Unfortunately, as the public pension plans blow sky high, taxpayers will have to pick up the tab. There’s a weird asymmetry at work. Public employees get higher salaries by assuming better returns on their pension plans (a higher allocation goes toward salary than towards retirement benefits), but if the assumptions of pension growth are optimistic, the taxpayer at the time of retirement gets the bill, well after those that made the budget decisions have retired.

Private pensions aren’t much better, as they will eventually be covered by PBGC. Today, for example, PBGC took over Eddie Bauer’s pension plan. PBGC will need a bailout of its own in the relatively near future.

A large amount of the government funding of the GM bankruptcy has been set aside to make the Delphi pensions whole, as they would have received a haircut by PBGC, so there is precedence for bailing out PBGC, provided the pensioners are unionized. The non-union pensioners in the auto bankruptcy did not get bailed out. In the case of the automakers, it wasn’t just optimistic assumptions about the growth of the stock market, but also optimistic assumptions about the growth of the auto industry that did them in.