Here's How Government Pension Funds Are Trying To Close Their $7 Trillion Funding Gap

Tyler Durden's picture

Authored by Simon Black via,

There may perhaps be no other group of investors that’s more DESPERATE today than pension funds.

Pensions, of course, are the giant funds responsible for paying out retirement benefits to workers.

The idea is that both the employer and the employee typically contribute a set percentage of the employee’s salary throughout his or her career with the promise that, upon retirement, he or she will receive a fixed monthly payment.

Many state and local governments rely on these ‘defined benefit’ pension pension plans, as do a handful of large corporations.

The reason that these pension fund are so desperate is that the vast majority of them are underfunded.

We talk a lot of about how Social Security is rapidly running out of money.

But according to Credit-rating agency Moody’s, state and local government pension plans are also $7 trillion short in funding.

And corporate pension funds are underfunded by $375 billion.

The reason is quite simple: investment returns are simply too low.

Pension fund managers invest all of their funds’ cash in various assets– stocks, bonds, real estate, etc. with the hope of generating safe investment returns.

And that’s precisely the problem.

With interest rates still hovering near the lowest levels they’ve ever been in 5,000+ years of recorded human history, it’s very difficult to achieve a significant investment return without taking on substantial risk.

Most pension funds require a minimum annual investment return of between 7% to 8% in order to stay solvent and be able to pay out their beneficiaries over the long-term.

California Public Employee’s Retirement System (CalPERS), for example, is one of the largest pension funds in the world.

And over the last 10 years CalPERS’ investment return has averaged just 5.1%. They need 7% to stay afloat.

SAFELY earning 7% is a difficult task today: government bonds in the US yield around 2%. Even junk bonds, which are ultra-risky, yield just 5%.

Real estate returns are also falling, with the average apartment building yielding between 3-4% according to the National Association of Real Estate Investment Trusts.

In fact the biggest apartment-focused real estate investment trust, Equity Residential, earns less than 3%.

Bottom line, it’s EXTREMELY difficult for very large funds to safely earn 7-8%.

And this matters… because they’re responsible for YOUR retirement.

I write a lot about the need to have a good ‘Plan B’… a backup plan in case the primary option doesn’t work out.

Well, considering that most federal, state, local, and corporate pensions are VASTLY underfunded AND consistently fail to meet their investment targets, it seems pretty obvious that Plan A for retirement isn’t going to work out.

Having a retirement Plan B means getting creative and taking matters into your own hands.

Part of this includes setting up a better retirement structure.

For instance, a self-directed SEP IRA and solo(k) both allow contributing nearly 10x more each year for your retirement than a conventional structure.

Moreover, the right retirement structure provides far greater flexibility in where you can invest your savings.

Instead of being tethered to overpriced stocks, bonds, and mutual funds, a good retirement structure allows investment in alternative assets like international real estate or cryptocurrency.

One type of asset to consider for your retirement is royalties.

A royalty is money that other people pay you in order to use an asset that you own.

For example, inventors who own patents receive royalties whenever big companies use their ideas.

Songwriters collect royalties whenever their music is streamed on Spotify or used in a TV commercial.

Investors who own mineral rights on a property collect royalties whenever a mining company pulls gold or silver out of the ground from that property.

Warren Buffett compares a royalty to owning a tollbooth: after you make an initial investment to build the toll road, the upkeep is minimal.

But you collect cash forever as vehicles pay you to use it.

Royalties are starting to become more popular investments, especially among pension funds.

Last month the Canada Pension Plan Investment Board committed up to $325 million for a portion of the future royalties in Venetoclax, a cancer drug.

Also in July, mining giant Glencore announced it was in talks with Ontario Teachers’ Pension Plan for a 50:50 venture for its royalty assets (including a royalty for the Antamina copper-zinc mine in Peru, which was expected to fetch around $250 million).

Lots of funds have also been launched specifically to invest in music royalties.

Round Hill Music Royalty Fund owns rights to more than 4,000 songs from artists like Frank Sinatra, the Beatles, Aerosmith and Billie Holiday.

Specifically, they own the rights to Land of a Thousand Dances, a song written by Chris Kenner and popularized by Wilson Pickett in 1966.

The song appears in the movie Forrest Gump and various video games, and it generates between $300,000-$400,000 a year, according to the fund’s CEO.

Another hedge fund, Shamrock Capital, raised $250 million last year to buy the rights to music, movies, TV shows and even video games.

I’ve even done this myself, buying rights to a country music song.

So anytime the song is streamed on Spotify or downloaded in iTunes, I received a royalty.

And while the earnings are by no means guaranteed, music royalties can often earn between 10% to 25% or more each year.

That’s hard to find in today’s investment environment.

And while the big institutional money is coming into royalties, there are still plenty of opportunities for the small investor. It just takes a little bit of digging.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Stan522's picture









GUS100CORRINA's picture

In thsi era of CENTRAL BANK MANIPULATION and PHENOMENAL RETURNS from technology companies, it is really hard to understand why there is any problem at all unless you were not invested in these technology companies.

I guess that is where the issue is at: The PENSION FUNDS needed a safe return and the technolgy companies were not very safe.

AMAZING when one thinks about it.

Creepy_Azz_Crackaah's picture

Print $8 trillion.

Problem solved.

Amaroosta's picture

Big question is, who the fuck thought 7% was a "safe" number?

redc1c4's picture

government w*rkers who knew they would NEVER be held accountable.

besides, if they run out of money, they can just raise taxes to cover the shortfall.

Son of Loki's picture

Start by taxing all those loud mouth anti-American CEOs.

SilverRhino's picture

Sounds like all those companies should have been buying options / investing to build Texas roads.    Tollways have been popping up all over DFW like it's fucking Christmas for excavation and earth moving firms. 


AGuy's picture

"besides, if they run out of money, they can just raise taxes to cover the shortfall."

Thats exactly what is happening. No Federal Tax cuts, but Fed tax hikes are on the way!

Dead Indiana Sky's picture

Same people who think inflation is 2%

FringeImaginigs's picture

They should just have bought AMZN, TSLA, NFLX, FB and gone golfing for the last ten years.  That's true management and investment smarts from hindsight. 

Stan522's picture

It's very simple..... Blame HUMAN GREED....

stitch-rock's picture

Pension managers should start buying BTC

Creepy_Azz_Crackaah's picture

And BitWampum.

And a few hundred acres of tulip bulbs just to be safe.

stitch-rock's picture

This moron retard again....jeeesh

Creepy_Azz_Crackaah's picture

LOL! Quite the rejoinder, Sparky.

"moron retard"

stitch-rock's picture

you are a bitch-ass troll.
Good job for you!

Creepy_Azz_Crackaah's picture

I'm guessing that everything that you have is in Bitcoin, plus you borrowed to buy Bitcoin (desperate much?).

I'll have to keep your phrases for future use. "Bitch-ass troll" and "moron retard." I"ll be sure to give you credit...

ExplodingEntropy's picture

A space sailing civilization cant use physical media for currency

ExplodingEntropy's picture

Ill bet you 10 try oz. Ag that you are wrong mr. Cracker sir. BUY BOTH

wisehiney's picture

Royally fucked is more like it.

thisguyoverhere's picture

Retirement will be mandatory.

Best case scenario:

Place 5-8 people in a line blindfolded.

One long high velocity round in the rifle chamber.

Pull the trigger.

More likely:

Higher rates of:
Starvation, Disease,Crime, general misery and homlessness

Then sprinkle in some psychopathic leader/adherrant to churchianity (think Joel Osteen or Pat Robertson types). telling everyone about how they shouldn't help those in need because its god's judgement, they deserve it. All the while the churchianity person on news interview flashes occult gang signs because his/her god is the enemy of mankind.

Bigly's picture

Osteen is a crook.

Jim and Tammy Faye 2.0.

The same dummies listen in and they will never learn.

Blazing in BC's picture

My neighbor's gardener's wife's lover's exwife's son in law endorses this financial strategy...go in balls deep or go home.

Crazy Or Not's picture

The Purge...geriatric edition?


headhunt's picture

Not old people - fucking unions and government

sessinpo's picture

Some day you will realize it is actually anyone that isn't considered productive enough to offset their own liabilities. To TPTB, we all are liabilities unless we are being used by them.

That day you realize it will be probably be near your last day.

fuckstar's picture

7 trillion short in funding and they already "lost" as in burned through every generation born after The Great War Part Deux, and mortgaged the survivors and their puppies forever. We serfs were cheaper and worked harder than slaves, but we got uppity so The Man is cutting us down.

Conscious Reviver's picture

The bust is baked into the boom. Banksters play the long game.

Seasmoke's picture





Fixed it. 

VIS MAIOR's picture

bitcoin is just more catalysator to inflation-more printig petrodollar.  bitcoin make milionares from 0 work or productivity. if they start selling and use fiat to retire- buble will boom. booth boobles ,retirement and bitcoin - whole system is based on making money from nothing. lazy people.. 

abgary1's picture

What the dumb fucks at the central banks could not see this coming?

These people are scary stupid!

Grandad Grumps's picture

Convert government pensions to Social Security and a 401k like everyone else. Tired of privileged parasites whining.

makinbacon's picture

If Apple music , Netflix , and Cable subscribers pay $10K a month , because of added royalty fees....

Should be back in black in no time...

headhunt's picture

The reason for this is 'unions' and politicians.

F'ing politicians suck the cock of unions and expect the rest of society to take it up the ass to pay them.

Fuck the politicians and their cushy pensions and healthcare and fuck the unions, especially the government unions, and their cushy pensions and healthcare.

messystateofaffairs's picture

Just let Janet give the dildo and the jewish oligarchs a break and print some jewbucks for the nice goy pensioners.

Herdee's picture

Can you fight the eventual devaluation that's going to come to the U.S. dollar though? What if it's 30% and then up to 50%? Paper is designed to become worthless.

cynicalskeptic's picture

Trillions go unaccounted for in Pentgon budgets.  Trillions are given out to Wall Street with no accountabiity.  The world's financial system is a disaster yet nobody even tries to fix anything.   TPTB just keep kicking the can down the road.......

I suspect that all this is happening because there is NO INTENTION of dealing with any of these problems.   Why bother when it won't matter.

I suspect that a cataclysm of immense proportions is in the wind - something that will leave much of the planet in ashes - and TPTB will be hiding in their own deep underground bunkers or with the 'government' officials that are supposed to provide 'continuity'.  Of course there wn't be much left to govern.   Other governments are making preparations to provide for their populace but not the US.  Russia runs civil defense drills for 5 million.  The US....

Just let me die quickly.    Would've been nice to get some warning though..... wouldn't have had kids.    I wonder how many psychopaths will get a spot in the survival bunkers while some of the best and brightest die on the surface?

Robert A. Heinlein's picture

It's not hard to fix according to the mayor of Chitcago. Just raise taxes. As many times as need to cover the gov workers pentions.  Oh, you thought you were working for yourself.  Silly boy.  

peippe's picture

really like the canadian fund investing in the cancer treatment drug.....

if the drug is very successful, and some canadian pensioners happen to be on it, they may 

live long enough to drain the pension plan of the profits it realized investing in the life extending cancer drug, right?

NoWayJose's picture

Hmmmm... should I buy gold or royalties on a 40 year old rock group?

ReturnOfDaMac's picture

Tough call, Jackson5, Elvis, Beattles, Monkeys, BeeGees, Prince, Willie Nelson, etc depending on where you get in, you could do OK

silverer's picture

Tough to play that stuff after the EMP, though.

silverer's picture

Parasitism of the productive.

silverer's picture

"Canada Pension Plan Investment Board committed up to $325 million for a portion of the future royalties in Venetoclax, a cancer drug."

I hope they considered whether people will have the money to buy what is likely a super expensive drug. People just might decide to do the easy barbituate/alcohol "cure", and leave their money to their family instead of heaping it on yet another rip-off drug company.

Thethingreenline's picture

There they go again:
Bashing the pensions,
Bashing the pensions,
Bashing the pensions.
Gobels said, tell a lie often enough and it becomes real.
They keep telling everyone the pensions are unsound so they don't have to pay them! Can't people see the con?
TTGL slung shit for 25 years and deserves the pension.
TTGL made concessions on other benefits and they need to hold up their part of the bargain!!
If needed, bail out the pensions like they bailed out the banks.