The Pension Bubble: How The Defaults Will Occur

Tyler Durden's picture

Submitted by Peter Diekmeyer via,

Experts worry about stock, bond and real estate market excesses. But a bubble is forming that dwarfs them all: in pension plans. Millions of Americans and Canadians who are counting on pension benefits to fund their retirements risk being severely disappointed.

The hard money community has, of course, been aware of this for some time. However in recent years, even the elites have been taking notice.

One such group, the International Forum of the Americas, will be holding its fourth annual pension conference in Montreal next Monday.

There politicians, financiers and monetary policy officials will discuss the declining rates of return in public and private sector pension plans.

The picture they will paint is increasingly grim.

Pension funds, which have been issuing over-optimistic revenue forecasts for years, aren’t going to earn nearly enough money to pay the benefits recipients expect.

Much of this relates to secular stagnation in the economy.

Bonds, which form a major part of most plans’ holdings, earn next to nothing in interest.

Stocks, which are trading at record levels, despite falling corporate earnings, look to have more downside risk than upside potential.

Worse, if bond returns average 2%, balanced portfolios projecting 7% to 8% annual returns have to earn 12% to 14% on equities investments to make up the difference. That’s unlikely to happen.

At least private sector plans have some money in them – public sector plans are in even in worse shape.

Governments have almost nothing put aside to fund future retirees – and they don’t even fully list their debts.

That process of “cooking the books” ramped up in a major way during Bill Clinton’s administration, whom Hillary Clinton, the current Democratic Presidential nominee, has promised to “put in charge of the economy.”

The upshot is that most Americans and Canadians have no clue how far in debt their countries are. Researchers such as Laurence Kotlikoff , a professor at Boston University and a write-in candidate for President in 2016, suggest that unfunded pension and other liabilities run into the tens of trillions of dollars in the United States. The Fraser Institute has shown that Canada isn’t much better.

Backing off commitments

Ironically, the biggest challenge facing government bureaucrats and private fund administrators has nothing to do with paying back pensioners. They have known for some time that would not be possible.

Their key challenge will be to ensure that shortfalls occur on someone else’s watch.

As such, these defaults will occur at a gradual pace. The first stages, already well under way, include steps such as raising eligibility requirements, increasing the tax burden on “wealthier” recipients and so on.

Congress, which teamed up to cut benefits during the Reagan administration, has been trying to find a way to do it a second time. Once the November elections are over, they will likely give it another shot.

A likely model will be Canada, where, in 2012, the late Jim Flaherty, a political master, camouflaged the Harper Government’s raising the eligibility requirements for Old Age Security from 65 to 67 by delaying implementation for ten years.

Flaherty further deflected media attention from the default by simultaneously banning the penny. Canadian journalists fell for the bait and spent the next week writing stories about the penny, never for a second realizing that Flaherty had slipped one by them.

House prices up 12%, food prices 3.7%. Pensions up 1.3%

Another tactic used by government officials and pension fund managers to avoid paying out pensioners is to inflate away the problem. As John Maynard Keynes, the great economist, noted: inflation is an excellent way to extract wealth, because not one man in a hundred will understand how it was done.

Here is how it works: governments promise pensioners that their benefits will be indexed to protect beneficiaries against rising prices. But they then use selected or massaged statistics to back out.

In Canada, federal (CPP) pension plan recipients will see their benefits rise by 1.3% during 2016. But food prices, according to Statistics Canada, rose by 3.7% last year. House prices rose by 12% up to December 2015 according to the Canadian Real Estate Association.

The controversial John Williams of Shadow Statistics provides credible research about how the data massaging works in the United States.

The effects of prices rising faster than benefits, over time, can be dramatic. If prices rise by 2% faster than pensions each year, then by the 20th year of retirement, beneficiaries will be losing 40% of their purchasing power (I am calculating using a straight line basis for simplicity).

In short, most pensioners won’t have a clue what hit them.

Outright defaults

Seniors vote – and there are a lot of them. So outright defaults on pension obligations will be a last resort of politicians and private sector plan managers.

However, it is starting to happen.

The ongoing saga of the US Central States Pension Fund, whose 400,000 beneficiaries were recently offered cuts of up to 60% in the amounts they receive, provides an excellent warning.

Amazingly the Central States Pension Fund, which manages funds for retirees from a number of companies in 37 states, actually has $18 billion in funds. Managers from those companies simply over-promised workers how much money they would get.

Pensioners in a variety of public plans including Detroit’s - which went bankrupt – and Illinois – which is insolvent - haven’t been much luckier. Many more will suffer the same fate.

Governments still have some time to manage the fallout. So do taxpayers who are counting on those plans to fund their retirements.

For them, the time to plan is now.

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N0TaREALmerican's picture
N0TaREALmerican (not verified) Jun 10, 2016 2:18 PM


When the credible John Williams of Shadow Stats increases his prices to match his inflation statistics then I'll believe his statistics.

Stuck on Zero's picture

The Author forgets how most government obligations are skirted: war. The noise of war always drowns out the pleas for assistance. 

0b1knob's picture

Raise the retirement age for social security like Canada did?   Say what?

The US did that decades ago.  The retirement age to get FULL social security is currently 66.   That will increase 67 soon.

Why is it that none of the "experts" know this simple fact?

Green_Street's picture

Social Security also gives COLA's based on CPI-W.

If wages don't go up in the U.S. which has been true for most of the last decade.  No Cost of Living increases, despite, Housing, Gas, Food, Medical ALL going up.

So as the article above so stated, and Keynes understood and 1 in 100 of us understand;

"John Maynard Keynes said,economist, noted: inflation is an excellent way to extract wealth, because not one man in a hundred will understand how it was done."

Escrava Isaura's picture

The Pension Bubble: How The Defaults Will Occur?


That’s easy.


Pension comes from surpluses/profits of the business/economy. Surpluses can only come from cheap energy; and cheap energy that needs to keep growing to infinity. So pensions will disappear alongside capitalism, communism, and government interventions. And thereafter, humanity; after they run out of the ability to cook food, because there won’t be any more trees left to burn.


There’s your red pill.


But, if you want to remain in the blissful ignorance of illusion, go ahead and join the either Bernie or Trump blue pill.



Archive_file's picture

I'm surrounded here in San Francisco by clueless idiots.

Escrava Isaura's picture

Because America indoctrination and propaganda system are real good, and relentless. I think they learn it from religion.


Also, by America being an empire. There are a lot things to distract you. And life is real good here, all things equal.


MalteseFalcon's picture

So let's save the trees, right buddy?

Escrava Isaura's picture

By the time we are finished with our play here, this planet will become a garbage can; with or without the trees.


There won’t be no destiny to be saved, even less of a tree.

ClowardPiven2016's picture

I prefer Friskies Turkey Filets in Gravy with Cheese but unfortunately the price is up 8% this year.

.46 per can a few months back, .50 per can today.

RibbitFreedom's picture

This is when Main Street finally wakes up

JRobby's picture

Exactly! Well stated.

This shit show is going to shock the fuck out of a big chunk of people.

Shit will go down that no one expects.

ToSoft4Truth's picture

Sure Main Street will wake up.  Granny will be put in a tenement with shared toilets because the Main Street kids cant afford her. 




JRobby's picture

Granny will be euthanized and ground into fertilizer. Stop sugar coating it.

gatorengineer's picture

Being honest I fully expect some superflu or virus, Legionaires, Zika, bird flu, Ebola, to get some traction and take out 10-20 percent of the worlds population....  Now whether or not the virus is generated in a CDC lab is what is subject to debate.

ToSoft4Truth's picture

Thanks for the honesty.  'America' has no will to live.  Just wait for the thumper to the back of the head. 

William Finn's picture

CDC = Center for Demographic Control

HowardBeale's picture

Actually, sugar-coated grannies taste better!

AE911Truth's picture

Millions of Taxpayers worked for a lifetime, earning and saving for retirement, only to have it stolen in 2008 by criminals on Wall Street. This money was not lost or destroyed. It was stolen. By deception, lies of omission, and outright lies, illegal collusion, insider trading pump & dumps, and 101 other means not yet revealed, the life savings of millions of Taxpayers was stolen. These are not baseless accusations. The testimony of Alayne Fleischmann is sufficient to convict JP Morgan of criminal behavior that was commonly practiced by its peers. Overall, trillions of Dollars were stolen from millions of Taxpayers.

The injured parties demand full restitution, since this savings is their sole means of survival. Given the unreasonable disparity in wealth between those who control and directed the criminal actions, versus  the victims, restitution is justified. Each Taxpayer is owed at least one million Dollars. Social Security is an appropriate means by which to return the stolen wealth.

More examples of lies and theft:

HowardBeale's picture

Facts are useless in the US of JPM.

Seasmoke's picture

New Jersey just ruled against COLA increases. The public takers are so shocked this morning they can't even speak !!!!!

JRobby's picture

New Jersey is done. Massive exit ongoing for a while now.

Their places are filled by import cash deals and those that qualify for DP assistance


MalteseFalcon's picture

Cutting the COLA's and boiling the frog is how they'll do it.

Higher inflation will be needed as well.

But there will be checks in the promised amount.

RafterManFMJ's picture

Spent 4 days in Jersey as a launch pad into NYC this week. The wife pointed out that in several restaurants - there was not one white working.

Our hotel was staffed entirely by Hispanics.

Walking Jersey city felt like Calcutta.

The richest irony and the highest white concentration was on Ellis Island; prolly 80% whites visiting.

Jersey feels like the third world already.

Niall Of The Nine Hostages's picture

You can't cheat an honest man.

Today's pensioners refused to have children, expecting someone else's to pay taxes and usury so they could retire at 55 and take 40 years to die. Living off the proceeds of usury wasn't a sustainable business model for any but the cream of the elite. The immigrants everybody counts on making up the difference will have better things to do in the countries they take over than wipe the asses of a few demented white people.

It was a huge pyramid scheme from the start. As with all pyramid schemes, only the ones at the top stand much chance of being made whole.

I am expected to believe I can look forward to a defined-benefit pension myself in a few decades. My working assumption is that by the time I qualify for benefits I will get nothing or only a small fraction of what I'm currently promised. I'm planning accordingly.


MoonSun's picture

Public pensions is the great pyramid scheme that no financial regulator would ever allow.

ImpotentRage's picture

And this is the gamble you take when you accept the promise of future payment for work you do today.


These days anyone who is relying on anything more than money that they themselves are gathering and managing for retirement is likely in for a rude awakening.

JRobby's picture

Destruction of 2 generations as the buildings are now coming down after 40 years of setting the charges in place.

Get armed or get on the bus to camp.

In.Sip.ient's picture

Trouble with your proposal...

...your thinking guns...less than useless!

Start thinking bombs, drones, rockets ( RPGs ),

...get the picture???


In.Sip.ient's picture

You might want to look at that "money"

real hard like if your talking FRNs...


Jubal Early's picture

If you have a defined contribution pension plan with decades of savings, you better take that early retirement now.  Your pension fund has hit the ZIRP-NIRP iceberg and it is going down.  At least if you take an early retirement now you can gnaw on the dead corpse for a little while like all the other parasites. If you can't take early retirement now, just quit working now.  The only other choice is to be a good cuck and just keep adding that pension plan to what has been stolen from you over the years.

JRobby's picture

Early retirement with a lump sum sent offshore or get on the bus to camp.

Toronto Kid's picture

Check your pension plan faqs. Many pension plans north of the border let you roll your pension entitlement into a LIRA, but some only if you quit your place of employment before the age of 55.

anarchitect's picture

A LIRA can provide the same investment options as an RRSP, which are typically much broader than the half-dozen lookalike, underperforming mutual funds offered by employers.  The first problem, however, is that you lose any matching contributions.  The second problem is that the "L" stands for "locked in": no withdrawals until age whatever (I don't know the current number), so you need another source of funds if you're retiring early.  The third problem is that the LIRA must eventually be annuitized.  Annuities are a bit of a rip-off even during good times, so imagine what they're like under ZIRP.  Once you've emigrated for a couple of years, however, many provinces allow you to unlock your LIRA and convert it to a regular RRSP.  Combining this with a move to somewhere cheap, like Peru, Ecuador, or Nicaragua, might be a reasonable solution if faced with the prospect of living off cat food.

Rainman's picture

No more fiat, but pensioners who behave will be offered non-negotiable IOUs ... to be honored at all senior-only, aging-in-place FEMA camps.

Infield_Fly's picture
Infield_Fly (not verified) Jun 10, 2016 2:37 PM




Fuku Ben's picture

"They have known for some time that would not be possible."

Now there's some truth. Unfortunately in the case of pensions its called fraud, co-conspiracy to commit fraud and organized racketeering. Lucky for the politicians they have immunity of office don't they? Can anyone ever rescind this immunity?

I don't know it's so hard to find out any truth here. As long as the expectation has been set everyone is going to lose everything if they come out with anything at all they've come out ahead.

Stormtrooper's picture

A .308 round flying at 3000 fps doesn't know anything about immunity.

Uranium Mountain's picture

There are at least 12 states trying to create their own Independent Bank's. If they succeed, I can imagine they'll take our pensions & slowly gamble them away by giving away loans hoping to gain some sort of return or just pumping money into the system.  Of course, with fractional banking, they can get nine times or more the amount of money they hold. After they've gambled it all away, they'll  issue some sort of apology but it will be too late. By then, all the politicians and bank creators will be retired themselves or dead.  What a great way to expand the money supply and inject money directly into their own states. That should create the inflation they want!  

swmnguy's picture

I've always heard great things about North Dakota's State bank.  Of course, it isn't in the interests of the Finance Elites for people to be aware of that, so they don't let their media give it much attention.

MoonSun's picture

High pensions and low pensions will gradually be very similar. They will mostly be just for survival purposes.

lasvegaspersona's picture

In Romania after the Chow-Ches-Kews, the government did pay everyone their pensions...nominally. Everyone got every hyperinflated cent they had coming. Eventually they worked out a system that was the best they could do...folks in the end got about a forth of their purchasing power they were promised. 

We are not looking at hyperinflation yet but governments always do it or they will be found to be incompetent. Better by far to hyperinflate (over-print) the currency than to cut benefits. This is especially true for government workers...but all retirees vote so you can bet big companies will be saved too. 

Soc Sec is a no brainer....everyone will get their nominal benefit. Once again hyperinflation will mean it is worth nothing. Debts will be able to be paid if they were acquired before HI but other things like food, rent and medicines....sorry 'that darned inflation is hurting us all'...'we sure wish we knew what caused it'.....

Dark Daze's picture
Dark Daze (not verified) lasvegaspersona Jun 12, 2016 10:09 AM

And what do you think they are going to do with all those Federal Reserve notes that aren't backed by gold and the Chinese won't accept? There will be a two tier monetary system in the US, one for trade, gold backed and the other for citizens.

In.Sip.ient's picture

Their planning 20 years forward for the

mess to get in gear.  That will put most

of the "injured parties" in their 80s... well

past the point where they can do anything,

let alone anything about these crooks.


RafterManFMJ's picture

Wat you mean "we" white wage-slave? - Mohammad the Somali immigrant.

silverer's picture

Moe, that sounds a lot like Robert Mugabe.

Uranium Mountain's picture

They probably have germs in a bottle somewhere that can wipe out old people specifically.   That's probably like plan C.  Or they can just go ahead and let anarchy happen then pay immigrants to form kill squads.  Since immigrants don't look like the nationals, there won't be nearly the internal conflict, plus all the free housing amoung other things they would receive.  It's really obvious the rich oligarchs want chaos and death.  They really could care less what happens you or your parents. In Nazi Germany there was the, "Jewish Question". Now its the, "Elderly Question".  If you're old, or getting old, you're the question and the problem.