Goldman Weighs In On America's Pension Ponzi: Contributions Must Rise $100 Billion Per Year

Tyler Durden's picture

Over the past several months, we’ve taken a keen interest in the deteriorating condition of state and local government finances in America. 

Moody’s move to downgrade the city of Chicago to junk in May put fiscal mismanagement in the national spotlight and indeed, the Illinois Supreme Court ruling that triggered the downgrade (in combination with a subsequent ruling by a Cook County court which struck down a bid to reform the city’s pensions), effectively set a precedent for other states and localities, meaning that now, solving the growing underfunded pension liability problem will be that much more difficult. 

Just how big of a problem is this you ask? Well, pretty big, according to Moody’s which, as we noted last month, contends that the largest 25 public pensions are underfunded by some $2 trillion

It’s against that backdrop that we present the following graphic and color from Goldman which together demonstrate the amount by which state and local governments would need to raise contributions to "bring plans into balance over time."

From Goldman:

Unfunded pension liabilities have grown substantially. There are several factors behind this, led by lower than expected investment returns and insufficient contributions from state and local governments to the plans. The two issues are related. The assumed investment return is used as a discount rate to determine the present value of liabilities. The higher the discount rate, the lower the estimated liability, and the lower the periodic payment into the fund a state or local employer is expected to make. There is, of course, no clear answer about what the discount rate ought to be, though the fact that the average assumption used by private plans has continuously declined for more than a decade suggests that the rates have probably been too high and that the current average assumption of 7.7% may come down further.


Contributions have also generally been lower than necessary to stabilize or reduce unfunded liabilities because of the rules around how those unfunded liabilities are amortized. Payments into pension plans are generally meant to account for the future cost of benefits accrued during the current year, as well as catch-up payments equal to some fraction of the unfunded liability left from prior years. Many plans target payment amounts that would work off this underfunding over 30 years, though some use shorter periods. However, the amounts of these payments are often backloaded, with the result that even if the “required” payment is made in full the unfunded liability often grows.


A separate but related issue is that some states have simply declined to make even the “required” contribution, which is probably lower than it should be in any case due to the factors just noted. For example, over the last few years New Jersey has made on average only around 40% of the expected payment. New accounting rules promulgated by the Government Accounting Standards Board (GASB) will penalize underfunded plans with a lower discount rate, but the change is fairly minor and, in any case, affects only the accounting; it will not impose any new legal requirements to make the contributions.


If state and local governments are ultimately forced to devote more resources to these obligations, the effect on state and local spending would be noticeable. Exhibit 8 shows the states’ pension contributions, as a share of gross state product, with two potential additions. The first is the level that would be required to simply meet the “actuarially required contribution.” To bring the plans back into balance over time, further contributions would be necessary. In aggregate this would raise government pension contributions by something like $100bn per year (0.6% of GDP), lowering spending in other areas (or raising taxes) by a similar amount. In theory, OPEB costs could push this adjustment a bit higher.

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LawsofPhysics's picture

Shit, QE was 80 billion per MONTH.

Global Weimar motherfuckers!

SafelyGraze's picture

we need to bring in a Lot More Workers

people who aren't part of the pension system

people who will work for low wages

people who will take care of the older folks

dontrump's new advisory board 

ebworthen's picture

Exactly, QE3 was some major $$$ gravy for Wall Street and the Banksters/Corporatocracy.

C'mon FED, help out us Serf's for once...

junction's picture

Goldman Sachs advice is is equivalent to Marie Antoinette's advice to peasants: "Let them eat cake."  Totally meaningless.  The same Goldman Sachs which ripped off local governments across the country with crooked schemes involving derivatives and smoke and mirrors borrowing schemes that hoodwinked state and local governments.  Talk about chutzpah.  Goldman Sachs's advice is a lot like the behavior of 19th century Western character Ned Buntline, who would show up drunk as a skunk to give lectures at a temperance meetings. 

Kprime's picture

Yep, FED can just print it and fund the pensions by fiat.  No need to work, produce, or lift a finger.

VAD's picture

These are government employee pensions.  There was no work or production in the first place.

Sanity Bear's picture

$100B a year is the amount of money Wall Street pulls down in bonuses. Funny coinkydink.

blu's picture

Yeah I wonder what Goldman could do with another $100B a year large of free money.

Greedy blood-sucking baby-killing undead motherfuckers. Just die. No come over here Lloyd so I can kill you, motherfucker. Feed you alive to a man-eating tiger is what I'll do.

cougar_w's picture

And BTW your sister rocks hard. The way she handled Judge Mark Ciavarella that time, it was dramatic artistic gold, baby.

blu's picture

No Cougar, that was sickness. Zero to completely insane in what -- less than a minute? Most embarrassing day of my life probably.

I don't know how you put up with her. Seriously.

Oh and now she's looking over my shoulder and wants to know when you are inviting us back on the show.

Please don't ever please please please

Thank god she can't read.

cougar_w's picture

We loved her on the show. Please tell her that for me.

Is it dramatic brilliance -- or unhinged depravity? Let the public decide! 

SafelyGraze's picture

1. tylerz sez to get a room, you two

2. $3.2 trillion notional? maybe need to move decimal to right.

cougar_w's picture

1. tylerz cain't touch this, brah.

2. It was still a nicely structured deal, and a tidy profit for an afternoon's work.

neilhorn's picture

Hogs. They will eat anything

blindman's picture

scam central of fiat grand con has
recommendations and insinuations to
announce. aaahhh, how 'bout fuck off
mate? no?

knukles's picture

Good luck with that shit, folks.

Has anybody but me noticed that there's not a fucking thing isn't broke?

Yen Cross's picture

 You're a good man Knuks. ;-)

Otrader's picture

Has anybody but me noticed that there's not a fucking thing isn't broke?

The banking elite isn't broke.  In fact, they're the richest aholes that ever walked the earth.

conscious being's picture

Rich in ponzi fiat is not everyone's idea of rich.

ThroxxOfVron's picture

Boomers underfunded their own pensions for 30 years and now demand full payment of them.

One guess how that is gonna turn out...

logicalman's picture

Promises were made, knowing they were false.

Now those who belived them, and even those who didn't, must pay some more.

Another day on planet insanity.

buzzsaw99's picture

yeah, they'd like that. let's do exactly that.

Hal n back's picture

just wait til the stock market falls 70%.

TheRideNeverEnds's picture

Well this is surely a problem moar printing can fix.

Get to work Mr Yellen!

Seasmoke's picture

I laugh at the public takers who get pissed off at the private taxpayers. The parasites should be pissed off at those above them on the pension ponzi pyramid. Idiots !!!

neilhorn's picture

Yes, I am pissed off at them. I should be getting more. It is not fair and everything is not equal, yet.

CHC's picture
CHC (not verified) Aug 16, 2015 8:47 PM

Hahahahahahaha that's too funny - TRILLIONS OF FUCKING DOLLARS!!!!  Hahahahaha

Catullus's picture

That giant sucking sound is the government employees

TheRideNeverEnds's picture

This man gets it!

Fuck your pension! work till you die like the majority of America will have to you elitist statist fucks.

Overpayed as shit as it is, some of you are so incompetent even if you did your job for free I would say you were given far too much.

you should thank your lucky stars that most of you government leeches don't just get a noose as a retirement plan.

neilhorn's picture

If you work for the federal govt. you should be willing to work for as much as the lowest paid worker in the private economy gets paid, take my shit when I dump it on your desk, thank me for my pile of shit, and hope you do not get fired for making me upset.

That is a federal government worker that I would like.


I upvoted you, because you get it.


How is it news when the giant Vampire Squid demands more money from the identured into servitude? Surely even Lloyd Blankfein knows one cannot squeeze blood from a stone.

darteaus's picture

Solutio: if a pension is underfunded and the employees are unionized (teachers, police, government, etc.), then the union dues should be redirected to the pension until it's fully funded.

fiftybagger's picture

Solution: cut their pay until it covers the difference.  If they quit, even better.

Fuku Ben's picture

Many will lose quite a lot in the end. Quite possibly all of it. There may be a lot of factors that determine who and how much. But the end it is going to get very ugly and complicated as bankruptcies increase as the economy collapses. Just reading the summary of the GM pension and bankruptcy write-up alone should give you some idea.

Yen Cross's picture

 I'm just beginning to stick my hooks into MBS Bitchez. It's payback time!

cynicalskeptic's picture

I know people who've retired TWICE from public jobs (two stints of 20 - and some worked second jobs while doing one of those).  They game the system to max out in their last year and end up with the same or MORE in pension payments than they had in typical year salary.  I know a former housing authority cop who's now on his THIRD public sector 'career.'   Of course the average worker - as well as they do - doesn't come close to the politicians who hold all kinds of jobs with sweetheart pension deals.... Seems liek every politician in NY has two or three 'jobs' - requiring minimal time and effort on various commissions that also have pension benefits.  dd it all up and they're doing VERY well (even if sent to jail they keep their benefits).

If their pension fund comes up short the public has to make up the differnce with higher taxes.   Meanwhile the resto of the world is lucky to have a 401K where you're dependent on what the 'market' does.

Was on a once in a lifetime cruise in Alaska a while back before the kids left for college.  Seems like everyone else on the cruise was early retired federal or state workers with a smattering of tier one teachers.   Used to be the 'low end' performers in your high shcool class settled for 'public service' jobs.  The joke was on the rest of us.  

neilhorn's picture

Looks like there were too many lower tier high school students. Now they have us outnumbered.

FreedomGuy's picture

I have distant relatives who worked their whole lives 9-5, never over stressed, especially by private standards. One will retire at full play the other at least 75%. It is insane. They make more than the average family doctor. 

This is what happens with a large leftist government. It becomes a two class system similar to the USSR. In the old USSR they were poorer because they did hard socialism but the difference is still the same here. There is and will be an ever more privileged government class that is protected and the worker drones in the private sector working for uncertain wages. The demand for money from government never ever goes down or balances and will never for various reasons. 

What makes me sad is that we, including me put up with this crap. 

If there is a great reset these people really need to hide. 

BTW, this is the way you buy loyalty all the way up to a Lois Lerner. You can get government workers to do most anything to their fellow man for the right money...except perhaps for Snowden. He is rare, though. 

neilhorn's picture

I think you have explained perfectly how the system works for all of us. My aunt, uncle, dad, mother, brother, sister, niece, nephew, have worked for the pension that will not outlive them. All that you work for is all that you have.

holdbuysell's picture

Seems Texas' all-weather pension fund is sitting just fine.

Barrack Chavez's picture

In the immortal words from Watergate... follow the money.

If anyone in the baby boomer generation ever intended to pay these pensions, they would have properly funded them all along.

And if any of these public leaches wants to complain, let them whine from the bottom of one of the endless pot holes they have been promising (and claiming) to fix for the last 50 years. You folks got paid appropriately for the work you actually performed.

holdbuysell's picture

I smell a 1789 vintage just opened and let to breathe.

Yen Cross's picture

 Save the cork

 . I can imagine the beautiful, "blood red", palate cleansing, after a huge bite of Fillet.

 That chocolate flavor, with the smooth rich texture of fillet crossing my palate.

 A nice port, with?


  Some day again?

neilhorn's picture

Ah, the age of reason and enlightenment. I would love a drought.

neilhorn's picture

I am willing to get rid of the racial and class distinctions that divide us, and promote the idea that a person works for what he earns.