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I was at a meeting last week where an executive from a leading pension fund consultant talked about the conundrum facing plan sponsors investing in real estate. Desperate to close yawning funding gaps for increasing numbers of beneficiaries, these institutional investors are back scrounging for higher yields—yields that by the way real estate just can’t and won’t deliver on an ongoing basis.

 At the same time, requirements to pay out generous pension and benefits packages to public employees mean an increasing number of states and local governments teeter on the edge of bankruptcy—whether their pension maestros can achieve these higher yields or not. Major cities, including New York, must reduce teachers and fire fighters to keep paying retirees, who by contractual right can start collecting fat lifetime pensions in their 40s when they have enough service under their belts. Many private companies, meanwhile, have scuttled defined benefit plans and left employees to manage their own 401K plans, because the defined benefit requirements eat into profits and are unsustainable.

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