One Chart Explains What Bernie Madoff And Kentucky Public Pensions Have In Common

Tyler Durden's picture

If Bernie Madoff taught us anything it's that every successful ponzi scheme requires precisely one critical component to keep it afloat: a steady stream of fresh capital to fund redemptions.  Absent that key component, even the most carefully crafted ponzi, with the best, most creative accounting fabrications in the world, will inevitably fail from a lack of real, cold, hard cash to keep the illusion going.

Unfortunately, it seems that Kentucky's public pensions are now running into the very same problem that ultimately brought down Madoff's multi-billion dollar 'empire'.  As the Lexington Herald Leader points out today, it's no coincidence that the Kentucky public pension system is suddenly collapsing just as the number of retirees (redemptions) has surged beyond the number of active employees (fresh capital) required to keep the ponzi going.

It’s impossible to know exactly who, where or when, but one day in 2016, a Kentucky state employee packed up her desk, said goodbye to her colleagues and retired.


Once she hit the exit, the number of retirees drawing a pension from the Kentucky Employees Retirement System (Non-Hazardous), the struggling $2.6 billion fund that serves most of state government, officially topped the number of active workers paying into it.


The 60-year-old fund has been mathematically upside down from that day forward.


Social Security, by comparison, has a roughly 3-to-1 ratio of workers supporting retirees, but KERS’ ratio is less than 1 to 1. Its numbers are expected to worsen as state government continues to cut its work force and aging baby boomers keep heading into retirement. The average age of a worker in KERS is 45, up from 43 just a few years ago. And they retire at age 57 on average to draw a lifetime pension.


“You just can’t depend on this model anymore,” said state Sen. Joe Bowen, R-Owensboro.

As Senator Joe Bowen notes, "it creates a cash flow problem"...

Bowen is working with Gov. Matt Bevin and other GOP lawmakers on proposed changes to Kentucky’s public pension systems, which face tens of billions of dollars in unfunded liabilities due to inadequate contributions and unrealistic financial assumptions by state government over much of the past two decades.


Bowen said Wednesday that an outline of their pension proposals could be unveiled within the next week, with a special legislative session to enact those changes possible later this year.


“The model of a defined-benefits plan doesn’t work for us anymore because we can’t raise enough money from this work force to pay for everyone who is going into retirement,” Bowen said. “This is why moving to 401(k) accounts, moving to defined-contribution plans, and then committing to paying down the existing liabilities … that’s really the only option we have.”


“It creates a cash-flow problem,” said David Eager, interim executive director of Kentucky Retirement Systems, which manages KERS (non-hazardous) and other state and local government pension funds. “The benefit payments are going to continue to go up. The contributions are going to continue to go down. That’s just the math of it.”

Of course, the demographics of the Kentucky pension system are hardly unique.  A surge in Baby Boomer retirements over the next couple of decades, combined with technological advancements that ensure that only a fraction of those retirees will have to be replaced with actual human workers, will inevitably result in a wave public pension ponzi failures as they meet with the same "cash flow problem" as Bernie Madoff.


That said, unlike the Madoff ponzi, no one will go to jail when the public pension ponzi schemes of the U.S. are exposed because, for some reason, defrauding taxpayers, as opposed to investors, is perfectly legal.

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Seasmoke's picture

One Chart Explains What Bernie Madoff And ALL Public Pensions Have In Common.

/Fixed it.

Investment Grade's picture

That was exactly my reaction to the headline.  Not limited to Kentucky.  It's everywhere.

Five Star's picture

Every state's pension underfunding given realistic market values put in terms of tax revenues. Terrifying

HRClinton's picture

NONE of these charts explain the Madoff event.

Had he not ripped off his own Tribe, he'd probably be the Fed Chairman. Chart me that, mother fickers!

Black Helicopterz's picture

Big difference though - most of the victims of Madoff's so-called "Ponzi scheme" (which it wasn't) got their money back.

forexskin's picture

this shitshow will take down much badness with it. can't wait, though the thought of retirement faded for me a long time ago. nothing left after these pigs spoil the ground...

CRM114's picture

That’s just the math of it.



Easy fix, stop teaching, hang on, we did that 10 years ago.

GunnerySgtHartman's picture

Maff is hard!  Especially when you're a politician!

AC_Doctor's picture

What happen's when all the LEFT'S  little children find out they have been lied to and our now fucked?



CRM114's picture

Well, largely, nothing, because they are mostly a bunch of useless time-servers who are incapable of significant action anyway.


You might not want to f#ck up the pensions of SEAL Team Six, fighter pilots, nuclear sub commanders though.....I mean, you did hire them to commit extreme violence against Governments that persecute their populus.

Okienomics's picture

I don't think those military organizations were created to oppose governments that persecute their populus.  Pretty sure of it.

YUNOSELL's picture

They are all brainwashed beyond repair so they wil never figure out they have been lied to and are being explited and if they ever get a sense at all they were taken advantage of, they will blame the alt right for it as they have been "Éducated" (ie brainwashed) to do so

YUNOSELL's picture

Good news! China just offered to continue paying by buying more treasury and municipal bonds! All they ask in return is that we keep consuming all their low cost imports from them exclusively.

NoDebt's picture

That's easy.  The MSM and politicians will blame the "rich" and begin (have already begun) the classic socialist class warfare dialog.  This dialog is, of course, completely political in nature and utterly impotent in fixing the underlying problem, which will grow exponentially until we achieve the pinnacle of socialist nirvana (which looks basically like Venezuela).  

Enjoy the ride.  You can fold your hands across your chest and steadfastly decide you don't like the ride but it won't matter.  Either way, you don't get your money back at the end.



HRH Feant2's picture

Oh you mean the entitled little brats that were driven everywhere by their parents, never had a job, were given every computer and phone to play with and once they graduate still think they are entitled and will flip out once they are in the real world? I am going to start carrying around a few tiddlywinks. If one of the fucktards has a meltdown I can flip them one and say here, this is how much I give a damn.

Lost in translation's picture

They're driven under armed guard in the back of a Deuce-and-a-half to a government-designated Safe Space.

Also known as a FEMA camp.

Pernicious Gold Phallusy's picture

They've been pre-programmed to believe it will be due to racist productive people who do that fraudulent math witchcraft stuff.

CRM114's picture

We know where this is going, don't we?

Force public employees into 401k-type "investments".

Disallow withdrawals or any employee control over investments.

Investment funds buy stocks like mad.

Stock market crashes - problem solved!

BullionBlast's picture

You forgot an important part. Force public employees into the new Freedom Bonds. These will be bonds that are all wrapped up in patriotic themes. Let's see, they could be sold as a special fund to protect American investors from the elements (Russia, China) of world politics that are to blame for all the economic trouble the US will soon be in. They can pay a wonderful interest rate of say 4% for a year or two. Then all the private 401K /IRAs that are clamoring to be allowed to buy in will infact all pile on. Then the US can issue a new domestic dollar and simply depreciate it by 10%, 30% or 40%. Everyone is now poor. Problem solved.

what happened's picture


What they are doing now is far worse.  Keeping unproductive government jobs to "protect" us, getting billions in fresh capital from the fed (and we are paying for it anyway).  They are also clipping the estates of seniors who are childless and abusing the vulnerable to tap into their ss benefits.

Pernicious Gold Phallusy's picture

No, what will happen is already happening all over the country. Politicians will conspire with government employees to pass smokescreens that do nothing to deal with the problem. Politicians will continue to get elected with government employee support. Taxpayers' liability will increase exponentially with time, but not many people will pay attention. Politicians and government employees will continue to assume any problems will happen long, long into the future, in a galaxy far, far away.

booboo's picture

Public service jobs without the service is the norm now. Try in my municipality to get a building permit by wading through layer after layer of slack jawed shoe shuffling nigtards and white trash that have been through so much sensitivity training that are afraid to look at a shadow of themselves without first checking their handbook to see if it is gender neutral. If it wasn't so infuriating it would be comical.

Omen IV's picture

the answer is simple - discontinue public education - end the cost by declaring the service a private tuition based system

Fun - whether it be recreation or procreation -  has no responsibility for third parties not enagaged in the FUN - you have the FUN you pay the tuition

then tell the retirees to get fucked - they knew these kids were not educable but they persisted with baby sitting to get the fraud completed to get retirement

Winston Churchill's picture

At least Bernies investors got 20cts on the $.

Kentucky pensioners won't even get the KY.

moorewasthebestbond's picture



Chris Christie used to work as Bernie's lobbyist, what else would you expect?

Pernicious Gold Phallusy's picture

Pretty sure the KY pols will try and stick it to the taxpayers, not the retired state workers.

HarryKallahan's picture


Cut the benefits from $80K to $20K.

Problem solved.

And they still get an amount about equal to what they would have from social security

Have it apply to ALL retirees.  No grandfathering.




Buckaroo Banzai's picture

It really is that simple. They were guaranteed a pension benefit, but the amount was never specified,

TeethVillage88s's picture

Monthly Treasury Report 30 Sep 2002, shows Pension Benefit Guaranty Corporation under Department of Labor

2016 Pension Benefit Guaranty Corporation outlays = $6.2 Billion
2015 Pension Benefit Guaranty Corporation outlays = $6.1 Billion
2014 Pension Benefit Guaranty Corporation outlays = $6 Billion
2013 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
2012 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
2011 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
Benefit Guaranty Corporation outlays = $2.1 Billion
2001 Pension Benefit Guaranty Corporation outlays = $1.4 Billion


Economist has NEGATIVE $750 Billion Trade Balance.

Trade balance Current-account balance Currency units Budget balance Interest rates
Country latest 12 months, $bn latest 12 months, $bn % of GDP, 2016* Feb 16th, per $ year ago, per $ % of GDP 2016* 3-month latest 10-year government bonds, latest
United States -750.1Dec (Laurence Kotlikoff) (Laurence Kotlikoff)

Monthly Treasury Report 30 Sep 2002, shows Pension Benefit Guaranty Corporation under Department of Labor

2016 Pension Benefit Guaranty Corporation outlays = $6.2 Billion ($6 Billion plus paid out annually since 2010 for pension shortfalls)
2001 Pension Benefit Guaranty Corporation outlays = $1.4 Billion

Jeff Reeves editor ( @JeffReevesIP )
Ed Bartholomew consultant pension financial management ( @e_bartholomew )
Jeremy Gold Society of Actuaries / American Academy of Actuaries ( @jeremygold )

JailBanksters's picture

It's NOT a Ponzi as long the Government gets a cut of the action.

Which is the real reason Madoff is in Jail, not because the cheated the Public but because he cheated the Government.


Normalcy Bias's picture

Ummm... I hate to break this to you, but the reason Madoff is in jail is that he ripped off some wealthy J E W S.

John Corzine only stole from a bunch of Middle American Farmers, so he, of course, never faced charges.

VWAndy's picture

Yep thats an exponential blunder folks. Its only going to get worse at a faster and faster clip. Your choice boomers. Lemme know whatcha plan is. Maybe I can help? Is ur woodchipper busted? Id pitch in for some gas?

Thisfuckenlife's picture

Couldn't wish for it to happen to any better group. Hope you're all forced to live with your kids someday soon, you self entitled wankers

Pernicious Gold Phallusy's picture

Does Bernie still sit up front at prison Yom Kippur services?

VWAndy's picture

 See that orange line kiddies? Its going to do pretty much the same thing the green one did.

GoldHermit's picture

They’re both fucked

Gatto's picture

So the solution is to hire 20 million new government workers and restore the ratio back to a 10 to 1!!