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Goldman Weighs In On America's Pension Ponzi: Contributions Must Rise $100 Billion Per Year
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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Shit, QE was 80 billion per MONTH.
Global Weimar motherfuckers!
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
hugs
dontrump's new advisory board
Exactly, QE3 was some major $$$ gravy for Wall Street and the Banksters/Corporatocracy.
C'mon FED, help out us Serf's for once...
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.
Yep, FED can just print it and fund the pensions by fiat. No need to work, produce, or lift a finger.
These are government employee pensions. There was no work or production in the first place.
$100B a year is the amount of money Wall Street pulls down in bonuses. Funny coinkydink.
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.
http://fedtoatiger.blogspot.com/2014/05/goldman-sachs-is-fed-to-tiger.html
And BTW your sister rocks hard. The way she handled Judge Mark Ciavarella that time, it was dramatic artistic gold, baby.
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.
We loved her on the show. Please tell her that for me.
http://fedtoatiger.blogspot.com/2014/04/judge-mark-ciavarella-is-fed-to-...
Is it dramatic brilliance -- or unhinged depravity? Let the public decide!
1. tylerz sez to get a room, you two
2. $3.2 trillion notional? maybe need to move decimal to right.
1. tylerz cain't touch this, brah.
2. It was still a nicely structured deal, and a tidy profit for an afternoon's work.
Hogs. They will eat anything
scam central of fiat grand con has
recommendations and insinuations to
announce. aaahhh, how 'bout fuck off
mate? no?
Good luck with that shit, folks.
Has anybody but me noticed that there's not a fucking thing isn't broke?
You're a good man Knuks. ;-)
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.
Rich in ponzi fiat is not everyone's idea of rich.
Boomers underfunded their own pensions for 30 years and now demand full payment of them.
One guess how that is gonna turn out...
Boomer crackers?
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.
Print
yeah, they'd like that. let's do exactly that.
just wait til the stock market falls 70%.
Well this is surely a problem moar printing can fix.
Get to work Mr Yellen!
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 !!!
Yes, I am pissed off at them. I should be getting more. It is not fair and everything is not equal, yet.
Hahahahahahaha that's too funny - TRILLIONS OF FUCKING DOLLARS!!!! Hahahahaha
a ponzi buying into a ponzi. yeah, that is kind of funny.
? I think I'm turning japanese - YouTube
That giant sucking sound is the government employees
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.
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.
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.
Solution: cut their pay until it covers the difference. If they quit, even better.
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.
http://www.zerohedge.com/news/2015-08-12/solyndra-20-nears-bankruptcy-bo...
http://www.dailywealth.com/2125/gm-americas-biggest-bankruptcy
I'm just beginning to stick my hooks into MBS Bitchez. It's payback time!
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.
Looks like there were too many lower tier high school students. Now they have us outnumbered.
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.
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.
Seems Texas' all-weather pension fund is sitting just fine.
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.
I smell a 1789 vintage just opened and let to breathe.
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?
Ah, the age of reason and enlightenment. I would love a drought.
Drink deep:
http://www.propertarianism.com
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.
Concur with comments below about Goldman Sachs..are they really concerned about our insufficiently funded pension plans? Is this is a rehash about news that is years old? Hum..wonder why they released this info...are corporate stock buybacks slowing down, does Stockman..I mean Salesman..I mean Goldman need to sale some sucker stocks to get them out of their inventory...what Goldman says is true...just like it is always a good time to buy a car...just ask your local auto dealer salesman...
Okay back to reality.
I'm looking at the DAX, and that should be trading the 10k handle. The Euro carry is postponed, unless everyone is long some 3rd world coutry I don't know about.
Indonesia?
I'm also looking at the Nikkei, and realizing that the KAMPO, and other macros are shorting oil and metals, to create demand.
Japan is structurely broken. The demographics don't add up. If Abe and that nutjob Kuroda print more yen, the country will go into a death spiral.
If usd/jpy moves above the previous float (125+) all hell will break loose. The only thing saving Japan is cheap energy.
Yes. It's an oxymoron. Inflation. ==driven by higher energy costs is bad for Japan.
increase by 100 biguns, obciously that's only the first installment.
The thing I hate about Pension Schemes is, everybody benefits from them except you, the person that owns the Pension Fund.
By the time you are allowed to peek inside the Box, you are too old to enjoy it. And the Government keeps extending the age you are allowed to open the Box, and even then you can't take out all the money you paid in, only a bit at a time.
The promise of my pension is a contract with someone who promises to pay me later for future value of my present contributions. If I can rely on his promise then I can expect him to pay me when I want to withdraw. However, if I were to ask the trustee for a present value of that promise, to pay it to me now, he would decline, for he has placed my money on the Come bet, and he cannot pay it to me now. His and my hope is that the Come bet will win. Else he loses nothing, and I have nothing.
This is government in it's natural environment. I say that with relatives from distant Communist countries. It works the same there with a privileged political-government class.
One of my old employers is offering a pension buyout. They want to unload the responsibility. It is not a large sum but healthy. Personally, I would like to improve my current situation which also improves my future situation. However, with all the government rules it will cost an ass-whooping fortune. It is because government controls all money (and property) even if it looks like you own it on paper.
You can only use your money withing specific rules and confines of law, tax law, mainly but others, as well. When you cannot control and direct your money (which is your labor) freely, then you are not really free. It is an illusion and you have to hope for favors from your rulers.
At least in ancient times and the Middle Ages it was more clear and honest than now.
The profit motive in action:
If I manufacture my product in China I can gain a competitive advantage.
I am losing profits as that firm manufacturing stuff in China is under-cutting our prices.
I must move my manufacturing to China.
Sometime later.
Everyone is manufacturing stuff in China and there is no competitive advantage.
China has become a new super-power.
There are no decent jobs left in the US.
Domestic consumption and GDP fall.
China becomes the dominant super power.
The balance of power shifts from West to East through one businessman's short term increase in profit.
Not to mention decades of product development and manufacturing expertise handed to China on a plate.
The businessmen never did take into account China's lax attiude to intellectual property rights.
Take the buyout if you think interest rates are too low. Hold the cash or buy something that will make money. The offer is extended to you, because the pension fund cannot make enough return to pay you what the fund will eventually owe. They cannot pay you in the future with funds they will not have. You can hold your own funds and do with them as you will. Pay taxes (the tax rates are not going down), and invest or hold the rest. Don't spend it on Chinese crap.
--Heloise
Cash out, buy silver. Easy peasy.
Did that before. That's the insurance part of the investment.
I hear you. It is a good option to cash out and buy something one can own and that provides revenue, current and future. I have considered buying a rental or two but property is rather high right now.
The main point is to control one's own future as much as possible...for better or worse.
The FED can print another trillion.
That should cover the next ten years.
Why should they just mend bank balance sheets after bankers have wrecked them through inept trading?
States want to keep the anger that will come forth from both government workers and the taxpaying public, at bay. States know this will squeeze everything else in their budget. That's when taxpayers finally wise up to how politicians have been selling them out to the unions for decades now. The states have made promises on the back of your children, and children's' children to pay off the debt they took on so as to secure union backing of their candidacy. If they had made it a pay as you go system, their career as politicians would have been much shorter. How sickening is that?
"Lower than expected investment returns?" What a crock of shit. What the fuck did they think would happen when they dropped interest rates to zero? This was done on purpose. The oligarchs insist they control the wealth and the revenue streams this wealth provides. The rest of us can go suck an egg.