This page has been archived and commenting is disabled.
Broken Promises: Pensions All Over America
Michael Snyder discusses the growing need for pension cuts across the states and cities. Any so-called solutions (like raising taxes) will inflict pain in the other places, while cycling right back to the same place anyway. Another vicious cycle: Of the 10,000 baby boomers headed for retirement - how many won't be able to? How's this going to effect the lack of jobs for younger people? A stock market crash would be disastrous, so the "printing money" method (with consequent devaluation of savings) seems like a way to slow our economic demise, but I can't envision any way out of this. Can you? ~ Ilene
Broken Promises: Pensions All Over America Are Being Savagely Cut Or Are Vanishing Completely
Courtesy of Michael Snyder of Economic Collapse
How would you feel if you worked for a state or local government for 20 or 30 years only to have your pension slashed dramatically or taken away entirely? Well, this exact scenario is playing out from coast to coast and in the years ahead millions of elderly Americans are going to be affected by broken promises and vanishing pensions.
In the old days, things were much different. You would get hired by a big company or a government institution and you knew that the retirement benefits that they were promising you would be there when you retired in a few decades. Unfortunately, we have now arrived at a time when government institutions and big companies have promised far more than they are able to deliver, and "pension reform" has become one of the hot button issues all over the nation.
Many Americans that have been basing their financial futures on their pensions are waking up one day and finding that their pensions are either gone or have been cut back dramatically. According to Northwestern University Professor John Rauh, the latest estimate of the total amount of unfunded pension and healthcare obligations for state and local governments across the United States is 4.4 trillion dollars. America is continually becoming a poorer nation and all of that money is simply not going to magically materialize somehow. So where is that 4.4 trillion dollars going to come from? Well, either pension benefits are going to have to be cut a lot more all over America or taxes will need to be raised dramatically. Either way, we are all going to feel the pain of these broken promises.
There simply is not enough money out there to keep all of the pension commitments that have been made. Something has got to give. In the end, millions of elderly Americans will likely be plunged into poverty as pensions disappear.
Some local governments around the nation are already declaring bankruptcy and are either eliminating pensions or are cutting them very deeply. Just check out what just happened in Central Falls, Rhode Island....
For years, city officials promised robust union contracts and pensions without raising revenue to pay for them. Last August, the math caught up with them. Central Falls was broke, its pension fund short $46 million. It declared bankruptcy.
.
"My daughters grew up here, went to school here. It's all gone," said Mike Geoffroy, a retired firefighter.
.
He said he could not make the payments on his house after his pension was cut by $1,100 a month.
When will the math catch up with the city where you are living?
For years and years most of our state and local politicians have been ignoring this problem. But eventually a day comes when you simply cannot ignore it any longer.
Check out what Pensacola Mayor Ashton Hayward said about the situation in his city recently....
"When our annual pension liability is more than our yearly property tax revenues, we have to do something"
Keep in mind that taxpayers don't get any new services for money spent on pensions. It is money that goes straight into the pockets of retired workers. State and local governments are desperately trying to pay retired workers what they are owed and fund ongoing government functions at the same time, but many have reached the breaking point.
All over the country, state and local governments are going broke. The following is from a recent article by Duff McDonald....
Alabama's Jefferson County has actually gone bankrupt. Stockton, California is all but ready to do the same. And all you have to do is look to Detroit—or any of the nearby auto towns named after a Buick model of one sort or another—and you see fiscal crisis playing out right now. Look in your own backyard—or at the potholes on your neighborhood roads—and you will likely find the same.
Things are so bad in Stockton, California that they are actually skipping debt payments....
The city of 290,000 that rode the wave of the housing boom in the late 1990s and early 2000s now finds itself littered with foreclosed homes, saddled with pension, health care and other obligations it can't afford, and unable to pay its bills.
The City Council voted last month to suspend $2 million in bond payments and begin negotiations with bond holders, creditors and unions.
And did you notice what is being blamed for the financial problems in Stockton?
Pension and healthcare benefits.
Sadly, we are seeing pension nightmares erupt all over the nation right now.
For example, check out what is happening to the Public School Employees' Retirement System and State Employees' Retirement System in Pennsylvania....
PSERS had an accrued unfunded liability of nearly $26.5 billion, the amount of money the fund is short to cover existing retirement benefits. That hole is expected to grow to $43 billion by 2019. SERS is $12.5 billion in the red, and that shortfall is expected to climb to nearly $18 billion by 2018. Unless the stock market makes giant sustained gains, taxpayers will have to refill those funds.
That doesn't sound good at all.
In California, the Orange County Employees Retirement System is estimated to have a 10 billion dollar unfunded pension liability.
How in the world can a single county be facing a 10 billion dollar hole?
This is madness.
The state of Illinois is facing an unfunded pension liability of more than 77 billion dollars. Considering the fact that the state of Illinois is flat broke and on the verge of default, it is inevitable that a lot of those pension obligations will never be paid.
In fact, there are going to be a whole lot of broken promises all over the country.
Pension consultant Girard Miller told California's Little Hoover Commission that state and local government bodies in the state of California have $325 billionin combined unfunded pension liabilities.
That comes to about $22,000 for every single working adult in the state of California.
So where is all of that money going to come from?
But at least most state and local government employees are still covered by pension plans, even if they are failing.
In the private sector, pension plans are vanishing at lightning speed.
According to the Boston College Center for Retirement Research, the percentage of workers in America covered by a traditional pension plan fell from 62 percent in 1983 to 17 percent in 2007.
That isn't just a trend.
That is a tidal wave.
And many of the private pension plans that still exist are massively underfunded. For example, Verizon's pension plan is underfunded by 3.4 billion dollars.
So what should Americans do in light of all this?
Well, the number one thing to realize is that the pension plan you have been counting on could disappear at any time.
We live in an economic environment that is extremely unstable, and about the only thing you can count on in this environment is rapid and dramatic change.
Do not plan your financial future around a pension plan. If you do, you are likely to be bitterly disappointed.
Americans that plan to retire in the coming years should do their best to try to fund their own retirements.
Unfortunately, most Americans are not putting away much of anything for retirement. As I have written about previously, one study found that American workers are $6.6 trillion short of what they need to retire comfortably.
Ouch.
Over the next 20 years approximately 10,000 Baby Boomers will be retiring every single day.
A lot of them are going to be blindsided by empty pension funds and broken promises.
We are facing a retirement crisis of unprecedented magnitude, and there is not much hope in sight.
And if there is a major stock market crash, things are going to be much, much worse.
Most pension funds and retirement plans are heavily invested in the stock market. If we were to see a major financial crisis like we saw back in 2008 it would be absolutely devastating. Millions of Americans could see their retirement plans wiped out in short order.
Once again, please do not place your faith in the system.
If you do, you are likely to end up holding a bag of broken promises.
A gigantic tsunami of unfunded pension obligations is coming. A lot of state and local governments are going to go broke. A lot of promises are going to be broken.
If you hope to retire any time soon, you better plan on being able to take care of yourself.
»
- ilene's blog
- 17027 reads
- Printer-friendly version
- Send to friend
- advertisements -
That heist has been going on longer than two decades.
Some salesman tried to sell me the "benefits" of pool skimming for top execs back in 1982.
I didn't touch with a long barge pole then,but it was alreasy a long standing ripoff then.
I think it was a GS salesman by the way.
Bill Gates to the rescue!
http://www.youtube.com/watch?v=pjS_qwO3V2o
"He said he could not make the payments on his house after his pension was cut by $1,100 a month."
If you are retired and still paying a mortgage, I think you have gotten some bad financial advice somewhere along the way.
Most of these assclowns were pulling equity out of their homes instead of paying them off before retirement.
It's the American way. It HAS to be okay!
All the more reason to start another war.
I'll just go the Solyent Green route
What, you mean we actually have to pay pensions to these people? Weren't they supposed to die before the payouts began?
Seriously, pensions started out being based in the fraud that most people would not live to collect them, and only fools (which would pretty much describe the political class) would continue on making pension promises without having a firm idea of where they were going to find the money to pay on the future obligations ... no surprise then that the last bastion of Defined Benefit pensions is largely the public sector, where the assumption is and always will be that John Q. and Joan E. Taxpayer will be there to pick up the ever increasing tab.
We're far enough into the game for even the dumbest public servant to recognise that the promises they have been banking are unfunded ... it is hard for us to have sympathy for their pensions being cut back to levels that would still be the envy of the rest of us.
Nothing that a genetically engineered flu virus or famine can't solve
One more given the DOD comment: Panetta's defense budget cuts are less negoitating hardware pricing, o/s private military contractors or their elimination and mostly on the backs of the lifelong service member : reduced pension and health benefits.
What was it Eisenhower said? The $2T down the crapper (Afghan - mission should have ended in 2003, Iraq - should have never started, Halliburton Bechtel, et al - easier to build where no regulations)
And now we have saber rattling re: Iran. Ironically, the countries border each other, differ by one letter: we are watching the same tape again - those aerial shots of dreaded, new term we have retired WMD (too much association) now "nuclear enriching facilities, weapon grade" - the longer explanation vs acronym giving cover - but it is the same script, same messaging.
Hit, rewind, play. Same sequal just streamed now. But the original BetaMax goes back to the 1970's this tired Middle East Maddness.
We could all place bets on Intrade, which stooge are they going to get to do the bidding ala Colin Powell? I doubt Hilliary is going to fall for that role.
Aren't the "defense" budget cuts really more reductions in projected growth in expenditures?
Drones are the future. No PSD. No retirement. Welcome to the machine...
My country, belgium started a silver plan. It was to make the country able to pay for our future pensions because at the going rate back in 2000, we would have a severe problem.
That was 12 years. Ago. A few weeks ago, a tv crew went on a interview with the director of the silver plan. Hesat down, and nearly started crying: "we don't have any money.... Thre should be.... But there's nothing"
So the reporter asked: how much should there be in the fund?
His answer: a heck of a lot! But there's nothing....
I kind of panicked right there, so the next day i asked my collegues opions.... The interview was at 23h... Nobody looked....
As a former partner in the largest audit firm, I saw the conversion from pension plans to 401(k) "get that liability of our books and transfer the investment risk to the unsophisticated million points of fragmentation: individuals" happen over a decade. 401(k)'s primarily invested in the giant squid tentacles (mutual funds) sucking all return out of them through fees and the constant ballon, burst cycle.
One of the single greatest transfers of wealth in history along with of course the MBS rape and steal.
State and local governement pensions are in the budgetary mess becuase during the good times, all money being fungible, paid Peter from Paul, not to ever raise taxes, and did not make the adequate REQUIRED contributions to their still defined benefit plans. At one time, these were conservatively managed and not in high risk derivatives - a time long long ago, that even time travel backwards can no longer reach.
When MBS burn happened, the losses exponentially grew - ie transfer of wealth.
And now, the little guy, takes another one up the rear end: reduced benefits and/or outright bankruptcy - zero.
All economic instability leads to political instability - there's a sobering warning in Tyler's Weimar post and other ecomonist comparisons to Germany. Same players today for it was American banks that gave cheap loans to Germany post WWI masking the still dismal economy. The depression happened and the spigot ran dry A to G. And in a few short years, Hitler was goose stepping down the StraBe.
Where are we incubating the next Hitler? Anyone's guess would be a wild card given IT is happening all over the globe.
'Where' are we incubating the next Hitler? Are you fucking kidding me? Look around you. Right here in the good 'ol USA.
As a former partner in the largest audit firm, you should spring for a copy editor...
I would take a 401k over a pension any day. How many companies have failed and taken their pensions with them? How many governments will fail and take their pensions with them?
"How many companies have failed and taken their pensions with them?"
And something that people haven't mentioned (I haven't spotted it) is that these pensions are then dumped into the lap of the federal govt, for pennies on the dollar that is. Companies screw up and govt has to pay out. Sorry folks, govt doesn't have a lock on this corruption thing...
interesting article from DefenseNews last week regarding pensions at contractors
http://www.defensenews.com/article/20120227/DEFREG02/302270001/New-Accounting-Rule-Could-Cost-DoD-Billions?odyssey=tab
New Accounting Rule Could Cost DoD Billions
A new federal accounting rule will require the government to increase reimbursements to contractors for their employee pension costs, a move that could cause the Defense Department to pay billions of dollars more for weapons programs. “I'm hoping that our vendors realize in tight fiscal times that they need to work with us to hold down weapons costs,” Pentagon comptroller Robert Hale said. (U.S. Defense Department)The Pentagon may pay billions of dollars more for weapons programs in coming years because of an obscure new federal accounting rule.
The rule, which takes effect this week, requires the U.S. government to reimburse its contractors to a far greater degree for their employee pension costs.
The Defense Department has not yet budgeted for the additional pension costs, but estimates they “could be billions of dollars, conceivably,” Defense Department Comptroller Robert Hale told “This Week In Defense News” on Feb. 23.
“I’m hoping that our vendors realize in tight fiscal times that they need to work with us to hold down weapons costs,” Hale said. “We think there may be modest added cost, we’ll just have to see, but we are going to have to start budgeting for them, and it is a question I’m asking internally as we look into our next budget plan.”
The cost to the Pentagon will depend on how the companies’ pension funds fare in the stock market, Hale said. If investments do well and earn money, a greater part of the plans will be funded, he said.
However, if investments do poorly and pension funds become further underfunded, affected contractors would be forced to make greater payments to cover those liabilities, pension experts said. And that will mean more cost to the Pentagon.
The new rule stems from the 2006 Pension Protection Act, which set new accounting standards for companies to use in calculating their pension fund liabilities. The law anticipated a conflict with federal cost accounting standards and ordered an five-member group called the Cost Accounting Standards Board to fix the problem.
Late last year, the board — which consists of both federal and private-sector officials and is overseen by the Office of Management and Budget — issued the new rule, which requires the government to recognize more costs that contractors pay into their pension plans as reimbursable.
Specifically, the cost accounting rule allows contractors to recoup all of their pension costs over four years.
Starting in 2014, contractors can add 25 percent of the difference between what they are required to pay under the Pension Protection Act and what they can charge the government under cost accounting standards. The percent of additional costs that can be charged increases to 50 percent in 2015, 75 percent in 2016 and 100 percent in 2017.
Take the example of a contractor who is required to pay $120 million to its pension fund under the Pension Protection Act, and yet federal cost accounting rules recognize only $100 million of that as reimbursable by the government. In 2014, the contractor would be able to add a quarter of that difference — $5 million — to what it can charge the government, for a total of $105 million. Under the same circumstances, the contractor by 2017 could bill the government $120 million.
With its roots in a 2006 law, the rule’s impact should have been anticipated, giving Defense Department officials plenty of time to budget for the expected costs, said David Berteau, director of the Center for Strategic and International Studies Defense-Industrial Initiatives Group.
“How can this have snuck up on us and caught us unaware?” he said. “I didn’t hear any alarm bells.”
Estimating the likely impact of the new rule is tricky. The annual 10-k financial reports filed by contractors provide some idea of the impact — they report the market value of a contractor’s pension plan assets and its future benefits costs. But the accounting standards used for those 10-k estimates are different from those used for contract reimbursement purposes, so those figures offer only a rough approximation of how much the government may have to pay in the future.
According to the 10-k reports of four major defense contractors, the difference between pension plan assets and future pension liabilities ranged from $2.9 billion to $13.5 billion.
Lockheed Martin’s plan assets, for example, are $13.5 billion short of future liabilities, meaning it is about 33 percent short of being fully funded. Northrop Grumman is $2.9 billion short on assets for its projected benefit costs, or 13 percent underfunded. General Dynamics’ plan assets are $3.9 billion below projected benefits costs, or 40 percent short of fully funded. Raytheon’s plan assets are $6.1 billion short of future benefit costs, or 28 percent underfunded.
Contractors are required to fund their employee pension plans according to the federal Pension Protection Act standards. But until now, federal cost accounting rules have calculated pension costs at a lower rate, meaning contractors have been unable to recoup all those costs from the government, said Terry Albertson, a partner with Crowell and Moring government contracts group.
The new rule will not mean that contractor pension plans will be fully funded by 2017, said Don Fuerst, senior pension fellow at the American Academy of Actuaries.
The gap between what contractors have been paying toward their plans and what the government has reimbursed will narrow, he said.
“But most contractors will still be contributing more than they’re reimbursed,” he said.
The cost accounting rule change also shrinks from 15 years to 10 years the amount of time contractors have to pay for past unfunded accrued liabilities, Fuerst said. The goal is to have pension plans fully funded in 10 years.
The impact of the new rule on government contracting costs could be dramatic given the tight budget environment most Defense Department agencies are operating under, Berteau said.
“This is way more than a bookkeeping question,” he said.
The first thing to note is that this is a sop to both the unions who represent workers at these firms, and therefore is an indirect campaign kickback to the Democratic party, as well as a sop to the elite crony-capitalists who run these firms (and therefore likely to be a 50-50 split of contributions to both parties. In other words, a fine example of bipartisanship.
It would be cheaper for the Govt. to top up the constractors schemes once and for all and then eliminate the provision that allows the costs to be funded.
And why bother to have two parties if all we really one is single-party rule via bipartisanship?
this is a sop to both the unions who represent workers at these firms, and therefore is an indirect campaign kickback to the Democratic party,
I've only known 3 folks employed by defense contractors, but all 3 were DEVOUT Republicans. I'd be surprised if defense-contractor employees skew significantly Democrat.
Passing laws and then neglecting to fund the required obligations is definitely bipartisan, but boy the Republicans put the Dems to shame on that front in the past decade or so.
I think most people here assume the worst and put aside PMs. To do otherwise is unwise.
Many I know are enjoying their pensions and are completely oblivious or in denial to what is happening.
Right, they don't want to know.
the article focus was directed at the USA. really though, its a world-wide problem. look at greece. think those folks are going to get those pensions? and, they are certainly part of greece's problems. You might say that they fought for those pensions right to the bitter end. that portell's that it isn't going to be easy to fix them here in USA. In greece, I think that the pensions are the reason that they've stayed in the Euro: they are hoping that the EU will somehow save their pension system.
What's going to happen to the private trade union pensions? I assume done the fucking toilet. My uncle is a retired sheet metal worker awesome pension. I wonder what the pensions are investing in to get their returns?
"I wonder what the pensions are investing in to get their returns?"
The Great Ponzi!
Child slavery, basically.
get ready for GRANNY FLASH MOB ROBBERIES!!!
I have this picture of the elderly begging on the street....as when I was in Mexico City a few decades ago. The vision is not a pretty one. Sad thing is...I'm only getting older.
Amazing how many people have NOT seen such things.
2/3 of the world's population lives on $3/day or less.
Best investment, if one wants to challenge the future, is one's health. Poor health and "old" are a bad combination.
If you hope to retire any time soon, you better plan on being able to take care of yourself.
Anyone who assumed any differently, no matter what the economic environment, is a fool. In fact, this is one of the biggest problems in American today: the assumption that someone else will "take care of me".
The Democrats have built their power base on it.
Also, one reason public pensions are so vastly underfunded is because they are ridiculously generous, and amount to far more than the average private sector worker earns while employed, let alone in retirement. Its about time this scam was ended.
I went to pull a permit I do every year at the local ag dept. Usually takes me 15 minutes. This time the guy took 2+ hours. He spent the time redrawing my boundaries, and reviewing every item on my permit. His intention was to make my renewal the only thing on his plate for the entire morning, and he was planning on leaving work at 1pm. Incidentally, through the grapevine I know that this guy also happened to be the one the dept promoted or kept recently out of a group or contract workers. I dont have time to screw off in my day for this kind of BS. Screw them all. Worthless f*cks.
Welcome to the security state.
They're keeping you safe!
There isn't many things that are worse in business than a regulator who feels he/she has to prove their worth.
Ugh.
And, when the regulations are ABOUT protecting the BIG businesses, well....
Another element of the "we're screwed' aspect is that the political will to change any of this is more or less zero: Just LOOK at the kind of retirement benefits (and medical) the members of congress give themselves - one lousy two year term in the house and you and your family are set for life. WTF? These people are not going to do anything (except talk a lot) about the avalanche of pension collapses coming.
Print it is - worked for the Weimar Republic, until it didn't...
your point is perfectly valid. but, think about it this way: we have a lot of loser's in congress. with the benefit package offered: if you ARE better than the loser's in congress, you should run for congress. we *need* better quality folks in there. I am trying to figure out how to run (to walk the talk or talk the walk). lower/reduce that package and you may get even worse loser's than we already have...
Yeah, we might get people who are stumped by apostrophe usage.
Govenrment workers.
Employee: We pay, they pretend to work.
Reitrees: We pretent to pay, they work.
And we all know that corporate workers making iCrap are very important!
Our entire fucking way of life is a joke. The premise (infinite growth on a finite planet) is totally absurd. To pick out one part of the absurdity without noting the others is, well, absurd.
Still, most "govenrment" workers know how to write and spell...
Apparently, you've never worked for the government
pension in the private sector are going away at the hands of bankruptcy judges the PBGC is another broke gse and 401k's are going to be sucked dry by the fed's funny money just leaves gold lead and can goods as the only retirement fund worth a damn
But but but two minute ago on CNBC the CEO of Remax said that housing is way up this spring and the summer of recovery is upon us.
I would like to donkey punch that bitch.
Overheard at CNBC...
"Gorf-gorf-gorf... Gobble-gobble-gobble... Uhh-huh-huy-uh-uh"
"Now it's your turn!"
"Already! So soon! Okay!"
•?•
V-V
Typical Realtor peddling houseing garbage.Got one in family,no differant than a car salesman,new and used.
At least they are still one notch above politicians. If you were a politician, you would probably claim to be the piano player in a whorehouse.
Yeah, really - the realtor is only lying about real estate, mostly.
The politician? If his/her mouth is moving, you can bet there's a lie coming out.
It appears saving during one's productive years and not counting on private pensions or government payments to support you is the winning strategy.
If there's growth occurring, otherwise the math/logic can NOT work out: not everyone could employ this strategy, as it means there HAS to be losers (even if they ARE trying to do everything right- and, well, the playing field is never even, most "winners" were born into it). 2/3 of the world's population are the "losers."
To shit on the "a rising tide lifts all boats" saying, "a rising tide drowns everyone." It's IMPOSSIBLE to attain some higher "standard of living" for the majority of the world's population. Consider all of this as one contemplates how to "retire." For myself, I plan on 'working" (read "being productive") up until the day I die; this is how the majority of humans on the planet have always done.
A realtor who is speaking, writing something down or just awake is lying. The only upside is they are dumber than politicians.