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Guest Post: That Which Is Unsustainable Will Go Away: Pensions

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

That Which Is Unsustainable Will Go Away: Pensions

Publicly funded pensions and Medicare are two examples of unsustainable systems that will go away in the decade ahead. Today we look at pensions, tomorrow we examine Medicare.

One of the few things we know with certainty is that which is unsustainable will go away and be replaced by another more sustainable arrangement. Whether we like it or not, or are willing to accept reality or not, unsustainable public pensions will go away.

What makes "defined benefit" pensions unsustainable? 1) Promised cash/benefits packages that are not aligned with the fiscal realities of what can be contributed annually to the pension funds 2) New Normal low yields on low-risk investments and 3) skyrocketing costs of healthcare benefits.

This is easily illustrated with basic math. Recall that defined pensions are not "pay as you go" plans like Social Security, where the taxes paid by today's workers fund the benefits distributed to today's retirees; "defined benefit" pensions are supposed to be paid out of a pension fund which generates returns sufficient to pay the retirees' benefits.

In a typical small coastal city (112,000 residents) in California, senior police officers receive annual pensions in excess of $100,000. Generous benefits (healthcare coverage, etc.) for life add another $20,000 or so a year, so the annual payout is roughly $120,000 a year per retiree.

Less senior city employees receive pensions and medical benefits around half that amount, or $60,000 a year.

These pensions are not out of line with what other cities on the Left and Right coasts have promised their employees.

The city has 1,637 full-time employees and 518 part-time employees. The average full-time wage (not including benefits and pension contributions) is $85,726. The estimated median household income for the city is $60,625.

Assuming the pension funds are managed conservatively, how much money would have to be set aside to fund a single pension/benefits payout of $120,000 a year and one of $60,000?

The yield on 10-year Treasury bonds is less than 2%, about in line with the average dividend on stocks.

That means that a conservatively managed portfolio of stocks and bonds now yields around 2%. At this rate, a pension fund would need $6 million in cash to fund the $120,000/year cash/benefit payout--$6 M X .02 = $120,000. The fund would need $3 million in cash to fund the $60,000/year cash/benefit payout.

If the senior police officer worked 30 years, then the city would need to contribute about $200,000 a year to assemble the $6 million in cash. That's $16,700 per month for 30 years. The $60,000/year cash/benefit pension would require "only" $8,350 to be contributed every month for 30 years.

(Yes, the interest earned on the early years of contributions would reduce the total contributions needed to reach the $6 million total, but in the real world cities stopped contributing to their pension funds during the "good years" of high returns, and pension funds assets decline in market downturns, wiping out years of gains in a few months. Assumptions and projections do not track reality.)

To fund 100 senior retirees and 200 less-senior retirees, the city pension fund would need $1.2 billion, roughly equal to 10 years of the city's entire general-fund annual budget. To fund 600 retirees, the fund would need $2.4 billion.

Recall that the Federal Reserve has implicitly promised to hold interest rates to near-zero indefinitely. The 2% annual yield is not an aberration, it is the New Normal.

Those pension funds that attempt to increase their yield by gambling on stocks, derivatives, real estate, etc. will blow up when these risky markets decline/implode, as all risky markets do over time.

Please "do the math" on your own city, county and state's pension promises, the skyrocketing cost of the promised medical/healthcare benefits, the yield pension funds can safely earn in the real world, and the total assets currently in the pension funds. There is no way to make the math work such that the pensions and benefits promised can be paid in the real world.

Wishing the math were different does not make it different. We can play around with yields and payouts, but adjusting the margins doesn't change the basic reality that the promised pensions are structurally underfunded in a 2% yield world.

Tomorrow we examine the unsustainability of Medicare.


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Tue, 05/15/2012 - 12:53 | 2427776 Turin Turambar
Turin Turambar's picture

It's rather obvious that you have no clue about gubbiment maf. ;-)

Tue, 05/15/2012 - 13:21 | 2427939 vmromk
vmromk's picture

Bernanke's FUCKED UP policies are unsustainable, will both he and his policies go away ?

Wed, 05/16/2012 - 00:21 | 2428439 cranky-old-geezer
cranky-old-geezer's picture



Thanks to Bernanke's fucked up policies, even the best funded pension is gonna be paid out in very devalued dollars.

You might get the amount you hope for each month, but it won't buy half what you hope for.

This is how Bernanke is looting pension funds right now.   By debasing the currency.  The silent way of stealing wealth from everybody.

Getting a pension plan fully funded is an empty victory when benefits are paid out in very debased currency.

Even if your plan is well funded, you're still gonna lose.  The dollars you get out of that plan might be worth 1/3 or 1/4 of the dollars that went into it.

If those dollars that went into it were yours, you lose bigtime.  That's why smart people are cashing out their 401k, paying the tax penalty, and putting it in gold or silver or something else Bernanke can't debase with his printing press.  

Lose 10% now or lose 50% - 75% later.  It's an easy choice for smart people.

Then there's the other possibility, 401ks getting confiscated and replaced with a "government guaranteed annuity". 

And yes that's a strong possibility, almost guaranteed, as government debt approaches unsustainable levels.  They'll grab the assets in 401ks which will buy them a year or so, just more can kicking, but your 401k will be gone. 

And that "government guaranteed annuity"?  Wait till congress gets done jerking around with the benefit side of it.  You won't get squat.

...and what little you do get will be dollars worth 1/3 to 1/4 of what they are now.

Tue, 05/15/2012 - 13:42 | 2428045 greyghost
greyghost's picture

this ass clown knows nothing about pensions. first says typical coastal town and then uses berkeley calif. hey ass wipe everyone in california knows that berkeley is nothing more than moscow on the bay and is in no way typical. you see my wife works for a goverment agency and will retire at aprox. $30,000 a year or $2,500 a month. now that she has filed the forms for retirement, the thing that jumps out at us is the fact that "HER" contributions are segregated from her "empoyers" contributions. it appears that she will be recieving first her contributions for what will be until about age 72. now, asswipe, what is the average lifespan of the female in the u.s.?  now, asswipe, should she die on the exact day that "her" contributions run out, remember no one has used or seen the employers money yet, what happens to all the monies that her employer paid in? think about this, just how large of a slush fund do these public agencies have if half the retired die before even touching the agencies contribution. oh, i think your are right about a ponzi scheme going on...your just completely clueless as to where to look. if you have not even looked at a certified annual financial report for any goverment agency you are just wasting everyone's time. you remind of the shits that talk all day about gutting soc. sec. and medicare when all they have to do is look at what soc. sec. pays per month to see just barely housing, food and fuel barely covered!!!! since my wife won't collect soc. sec. how does her retirement rate against soc. sec. payments? one last note much more will her employers' contributions grow while she drawns down her contributions? just more asshole talk about a problem but no solutions...just cut gut slash screw f@&k and butcher away!!!!!

Tue, 05/15/2012 - 13:46 | 2428069 fonzannoon
fonzannoon's picture

Greygthost you seem to have your numbers in order regarding your wife's pension. I live in the Northeast and around me the pensions are ballpark TRIPLE your numbers. Oh and THE EMPLOYEESS DID NOT CONTRIBUTE. Oh and THEIR HEALTHCARE WAS AND IS FREE WHILE I PAY $1,500/MO. But her I am sure it will work out.

But hey let's just go with your example as the basis for everything.

Tue, 05/15/2012 - 14:10 | 2428201 greyghost
greyghost's picture

well we know that some of the pensions are nothing more that complete ponzi scheme. however here in calif every goverment agency has their own seperate pension system, with most managed by calpers. what i take isuue with is that an idiot like this author comes along and takes a system like calpers which has hundreds and i mean hundreds of different pension plans and treats them as all the same. he has no clue as to what he is taking about. my wife and i are aware that some gov. agencies pay all retirement contributions, however my wife has paid 7.5% a year for thirty years and her employer has paid amost double that [again that is alot of bread that the employer has paid into the fund]. the ponzi is "what the hell happens to all the employer contributions should my wife die before collecting any of that"? we have fools come on here spouting nonsense in play ground is almost the complete reversal of obama's class the rich to death all the while the other side talks gut the hell out of everything...morons all. my wife and i know exactly how much we have paid in and how much that has grown over the years.....but but but when we think about the amount her employer has paid in...well it just wants to make your brain explode. should my wife live the average lifespan i want the taxpayers in calif to know that amount of funds not used is very very very large.....shhh do look to see where it goes!!!!!!

Tue, 05/15/2012 - 14:32 | 2428273 LetThemEatRand
LetThemEatRand's picture

Tough shit.  Jamie Dimon needed your wife's pension.  Tighten your belt.

Tue, 05/15/2012 - 14:33 | 2428280 insanelysane
insanelysane's picture

Everyone pays into social security too but there is no money there, just an iou.  You will find out that it has been vaporized.

Tue, 05/15/2012 - 14:36 | 2428284 LetThemEatRand
LetThemEatRand's picture

By "vaporized" you mean given to the .1%, like the MFGlobal money was "vaporized," right?

Tue, 05/15/2012 - 20:47 | 2429735 Jack Burton
Jack Burton's picture

"Vaporized?" President Johnson all those years ago tapped the social security surplus to pay for years of war in Vietnam. Reagan tapped into the social security fund to spend a trillion extra on military build ups.

The Bush's used social security money to pound the shit out of Iraq.

People who work and payed into social security fully funded their pension's payouts and then some, the fuck'n money was stolen by politicians to rule the world!

Research it, it is a fact and Nobody, I mean nobody, can deny it, if they do their are liars! The facts are there, SS is a stack of IOU's for wars and weapons.

Tue, 05/15/2012 - 14:40 | 2428298 knightowl77
knightowl77's picture

My CalPers pension...for the first 10 years on the job, I contributed 9% of my base salary and my employer contributed 21%....About 10 years in, the city I worked for, offered to make our 9% employee contribution in lieu of a pay raise...So our net went up and since CalPers was making so much in the markets, they did not require the employers to make their contributions either...

Seemed like a win-win at the time...

Frequently, my employer would offer us pension upgrades in lieu of increasing our pay....All of these contracts were discussed and voted on at the city council meetings...

These pensions were promised in lieu of other pay or benefits. I would've left early in my career were it not for the pension

Tue, 05/15/2012 - 14:59 | 2428383 greyghost
greyghost's picture knightowl you know that this author is trying to lump your retirement plan with my wifes' retirement is totally bogus...can't be trying to unify europe with so many cultures. with all these upgrade to your retirement the funds should be huge to fund it...calpers is required to see that all funds are paid in. so your employer has funded these huge amounts....THAT MAY OR MAY NOT BE PAID OUT! that is what i am getting at, how much of these funds are never used due to death of the employee? how many hundreds of millions of dollars are never paid out, especialy in my wifes case where her contributions are paid out first, before ever touching the employers' funds. we have been watching the agency she works for since her union and employer have this incest type relationship....people leave her employer and go to work for the union and vice versa all day long and the worker bees get screwed by the top boys all day long. well good people of california you listen to this troll author all the while hundreds of millions are slushing around, where they go no knows.

Tue, 05/15/2012 - 15:44 | 2428607 LetThemEatRand
LetThemEatRand's picture

The narrative that is gaining more and more traction is that pensions cannot be paid because they are underfunded, yet no one is responsible for this other than the workers themselves for being stupid enough to believe what they were told.  These are two lies in one.  First, some pensions are well funded or at least well enough funded that they can pay out for decades.  Those will be sucked into the vortex along with those that are not.  Second, if a pension is underfunded it is probably because those at the top either misallocated resources in the first instance (public pensions) or skimmed from the top (private pensions) and made millions in salary and bonus while promising lowly workers that they would get theirs some day, knowing all the while they the extra money was coming to them and would never go to the workers.  Also, the 401K concept is a big part of the problem.  The idea that most people can save enough to plan to live to 100 and have medical problems is absurd.  You need to pool resources to do this.  But we were all sold a bill of goods, weren't we.

It is generally true that many people are fucked due to poor decisions over the last two generations or so.  What is sad is that few will connect the dots about why, and chances are that no one -- least of all the top .1% who have enriched themselves on this scam -- will be held accountable.

Tue, 05/15/2012 - 16:01 | 2428709 greyghost
greyghost's picture

letthemeatrand...well said. yes i worry that my wifes funds may get vortexed because of other agencies not paying up. however, i not sure how seperate the funds are within calpers..between the hundreds of agencies they manage funds for. however my wifes paperwork clearly says her funds are x and will last until x. no mention about how much her employers funds are. howeversince they pay double what she pays we can get real close. since the down turn in 2007 i do have to say that calpers appears to be more upfront with the figures who monies belong to whom and clearly state that the employer paid funds belomg to the employer. than again these funds are available should she out live her funds.

Tue, 05/15/2012 - 14:42 | 2428310 greyghost
greyghost's picture

well just junk away fools.... i have given you a look into the real pension system and the true ponzi scheme of gigantic slush funds in retirement systems here in california. go ahead and read this nonsense bantering around mindless figures to spin his story for his own ends. no skin off my nose...i just feel that if this is the way her pension is ain't the only one in this country. hundreds and hundreds of millions of dollars in enormous slush funds...while he paints a picture of doom? hell now that i think of it...does he work for goverment/pension funds....oh lookie over there...all the while millions upon millions go sloshing around to be used for what and by whom.....hmm? just sayin

Tue, 05/15/2012 - 15:54 | 2428680 IcarusOnFire
IcarusOnFire's picture


YOU are the problem because you refuse to confront reality.  We've all been promised the moon and NONE of us are going to collect.  That's the bottom line. You can debate all the nitnoids of your particular situation and explain why YOU are different......but in the final analysis you are not!  YOU have been lied to, cheated and stolen from.  The money is no longer there, it's been MFGlobaled.  And it never will be there under ZIRP.  That is the reality.  All the bitching in the world ain't going to change reality.  The money ain't there.  Get used to it.



(Lost my private pension of $120,000 a year in 2006)

Tue, 05/15/2012 - 16:21 | 2428799 greyghost
greyghost's picture

icarusonfire, first off sorry about your lost pension and second thank you for response. my intent here is to show that this author is wasting time splitting hairs and is nonsense, as you say it is all mfglobaled. so you agree than that this whole article was a waste of time...yes. i am using my wifes' pension to show just how much crap this clown has written. he knows not what he has written about. he comes on as some sort of expert on pensions, yet is clueless about how they are managed how many seperate enties are involved.  now in the bigger picture, yes we are all screwed...yet you pick my discussion apart but leave his useless dribble alone???? really? the discussion is about weather this fool knows what he is talking about is it not. has he brought any solutions with him, other than to rape plunder pillage some other citizens pension without any thought about the pain it would cause? no he has not. his next useless article will be about gutting soc. sec. and medicare, just like all his mindless kind can talk about over drinks. we need to keep discussing these problems to help find solutions to the mfglobalers.

Wed, 05/16/2012 - 00:27 | 2430378 Vlad Tepid
Vlad Tepid's picture

Drivel..not dribble.  Pointing that out is my superpower around here...

Tue, 05/15/2012 - 21:13 | 2429803 malek
malek's picture

another one who believes if he can provide a single counter example, then the whole story is proven utterly wrong

Tue, 05/15/2012 - 22:29 | 2430048 swamp
swamp's picture

Her employer paid into the pension plan you state. 

Her employer is the government. So you are saying the government not only pays the pensions, but they pay into the pension of those still working.

And taxpayers pay for ALL of this.

END IT NOW. Implode the system!

Wed, 05/16/2012 - 00:35 | 2430387 StychoKiller
StychoKiller's picture

Projected Ca. deficit:  $8Billion, actual:  $16Billion!

Methinks you and yer missus are gonna be mighty upset in the future.

Wed, 05/16/2012 - 11:40 | 2431644 Papasmurf
Papasmurf's picture

Surely you don't think it matters what you or your employer paid into Calpers.  Wall Street has egged this out from the inside a long time ago.  The only thing that remains is printed statements of what you "should receive".  Good luck on that.

Tue, 05/15/2012 - 20:04 | 2429609 Buck Johnson
Buck Johnson's picture

Bingo for my area also.  Oh if you want to see what will happen check  out Pritchard Alabama, there pension was just stopped because the county had no money.

Tue, 05/15/2012 - 14:49 | 2428334 JamesBond
JamesBond's picture

greyghost -

your a fucking idiot.

your math errors are typical of a 1st-grader

Tue, 05/15/2012 - 15:30 | 2428524 kinetik
kinetik's picture

Jamesbond: you're the idiot here. Please use proper grammar and spelling and maybe people will stop automatically laughing at you.

GreyGhost, keep telling the truth, people like Janesbond,, who is obviously at the lower end of the education spectrum shouldn't bother you or prevent you from typing out the truth.. Don't let them, they think their memories of reading "Atlas Wept" at 15 yr old prepares them for the realities of life. Hahah, it's no wonder that the vast majority of Randites haven't put any more thought into reality than they did at 15 when they read that piece of pulp fiction. I weep for them an their wild west fantasies.

Tue, 05/15/2012 - 15:44 | 2428552 greyghost
greyghost's picture

do you or do you not know what a CERTIFIED ANNUAL FINANCIAL REPORT is? if you do not you are completely clueless about the hundreds of billions of dollars that all goverment agencies are sitting on all across the u.s. aprox. ten years ago california was sitting on about $600 billion in investments...stocks and bonds, etc. this was from their certified annual financial report....PLEASE DO NOT CONFUSE THIS WITH THEIR ANNUAL BUDGET!!!!! calif has a dept that does nothing but invest huge amounts of monies every year...year in and year out. i thinking that these funds are probably about half that amount now. you can be sure that california is not the only state that has this. cities, counties and any goverment agency does this. one person did this with new jersey several years ago when they were broke, back in the day. he found the mind blowing new jersey turnpike authority has something along the lines of $6 billion of debt but was sitting on about $14 cash collected over the years. just here in calif our beloved gov. moonbeam was gov. in the 1970's also. now his daddy was gov. of calif in the 1960's and had helped set up a massive trust fund for the calif dept of transportation. this baby was set for the next thirty years...until moonbeam got hold of the funds and gutted it for every free give away he could think of. the point being is that you have clowns like this author running around spewing rehashed reworked  figures we have seen endlessly since i can remember. oh hell lets go back 40 years and the story hasn't changed.....nothing new here only the figures[math] has changed. how many gov. agencies can you think of off the top of hat that are self run and the turnpike mention earlier? sucking up endless monies year after year...why would anyone think that the ponzi doesn't encompass pensions. NOW GET THIS CLOWN: CALIF HAS HUNDREDS OF BILLIONS IN INVESTMENTS BUT ALL YOU HEAR  IS THE 17 BILLION "BUDGET" SHORT FALL!!!!!! panic in the streets RAISE THE TAXES TAX THE GIRL SCOUT COOKIES TAX THE TAX ON THE TAX. this author is clueless and so are you.

Tue, 05/15/2012 - 20:30 | 2429685 BooMushroom
BooMushroom's picture

You are 100% correct, it is certified, and therefore correct. It is also online, and searchable. Here:

Anyone can see that the money is there. And safe! Because it is invested in Apple, Bank of America, FNMA, JPM, MFG, Deutsche Telkom and Deutsche Bank, Wells Fargo, and Washington Mutual.

Unless CALPERS manages to dodge the droppings from every black swan, it doesn't matter how much you paid in. The CALPERS people don't, and won't, just put the FRNs under a giant mattress. And if they had, Bernanke has printed trillions more just like them.

Why do you think they offered you pension money instead of real money, anyway??? Because, for whatever reason, they felt a 5% raise toward your pension would cost them less than 5% toward your paycheck. Spin any of the other facts however you like, you can't deny that one.

Tue, 05/15/2012 - 21:15 | 2429808 malek
malek's picture

Thanks, Boo, but I don't think grey can take that much reality...

Tue, 05/15/2012 - 15:04 | 2428399 jekyll island
jekyll island's picture

Turin is right, these projections are assuming "normal" economics.  One of the future QE's (yes, there will be more after QE3) will be to bail out the states.  California needs $400 billion?  The Bernank will print it and boom, no pension shortfall.  Your pension dollar will probably buy 10% of it's current value, but hey, everyone will get their checks. 

Tue, 05/15/2012 - 12:52 | 2427777 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Pensions = IOUs

IOUs are for suckers

Tue, 05/15/2012 - 13:12 | 2427899 Cursive
Cursive's picture

@Mr Lennon Hendrix

Can you imagine the freak show we are about to witness when these mostly female "teachers" realize they bought a Ponzi?  Hell hath no fury like a school marm scorned.

Tue, 05/15/2012 - 13:37 | 2428025 Paul Atreides
Paul Atreides's picture

@Cursive you have no idea how right you are. I have retired female teachers in my family and I assure you every one of them would unleash their full wrath upon all responsible.

Tue, 05/15/2012 - 13:42 | 2428052 Gully Foyle
Gully Foyle's picture

Paul Atreides

And what will they do? Lead an armed insurrection? Write some nasty letters? Become disgruntled speakers at OWS tent cities?

Do you really think anyone cares if a bunch of teachers bitch and moan? Three quarters of the people here hate teachers and the Educational institutional system that brainwashes the young.

I would start stocking up on cases of Vodka so they can numb the pain and frustration when they finally realize exactly how powerless and ineffective they truly are.

Tue, 05/15/2012 - 14:35 | 2428250 Paul Atreides
Paul Atreides's picture

Dividing us with sexist and stereotypical remarcs will get us NOWHERE. It is time for humanity to unify and solidify. I stand by my educators and the rest of civil middle class society, Teachers are given a curriculum to follow and if they deviate they lose their job. You have no idea how good teachers are at mobilizing, I have seen it with my own eyes. If one of them can organize and run a class of 25 bratty kids for a 30 year plus career beacuse they have to for a living one can only imagine how effective 100,000 pissed off school teachers could be at mobilizing a society who are ALL about to lose their pensions.

We cook your meals, we haul your trash, we connect your calls, we drive your ambulances, we teach your kids, we guard you while you sleep. Do not fuck with us!


Tue, 05/15/2012 - 14:49 | 2428339 A Nanny Moose
A Nanny Moose's picture

Couple of teachers exploiting students on the local new is all you need to rouse the rabble. After all, it's fo the chitlins. At least that's we roll in LA, at the mere mention of Pink Slips.

None of that emotion gets us around having NO money.

Tue, 05/15/2012 - 15:27 | 2428470 mt paul
mt paul's picture

haul my own trash to the public dumpsters

use an atomated cell phone 

don't need an ambulance 

no kids to be taught

my dog guards me while i sleep

don't need any thing to do with you entitled muppets..

if you were any good at what you do

you would be running your own shop...

you bought into the game 

deal with it...

Tue, 05/15/2012 - 18:24 | 2429260 Paul Atreides
Paul Atreides's picture

ME ME ME, these people paid into and are therefore entitled to their pensions,  show some compassion you selfish dick!

Tue, 05/15/2012 - 19:09 | 2429432 Talleyrand
Talleyrand's picture

These entitled people paid into their "public" pensions with funds that were extorted from the non-entitled, the tax slaves. Same is true of the "employers'" contributions - all of it stolen by a gang of thieves writ large. This shit will end - one way or another.

Tue, 05/15/2012 - 19:40 | 2429550 Paul Atreides
Paul Atreides's picture

Pension dues come right off their is that extorting from the non entitled tax slaves? Please explain I would really like to know....

Tue, 05/15/2012 - 22:43 | 2430071 Talleyrand
Talleyrand's picture

We're talking about "public" pensions, government (at some level - city, county, school district, state, etc.) pensions, right?  Think it through. 

Governments have no money other than what they can extract from productive people who just happen to live within their self-proclaimed jurisdictions (jurisdiction = monopoly on violence within a prescribed geographic area). The government employee's salary is a transfer of wealth - at gun point - from producers to the governing/bureaucratic class.

This is usually done under the pretext of providing some sort of government "service" that the individual may not need or want - may never have imagined needing or wanting. At gun point, too! Don't believe me? Just try not paying that portion of your taxes that goes toward an especially repugnant and corrupt government program and see what happens. First, they'll come to take your property. If you defend your property, they'll try to take your liberty (put you in a cage). If you try to defend your liberty, they'll take your life. So, under duress, we pay the taxes that transfer the fruits of our labor to the local, state, federal bureaucrats and elected (not by me!) officials.

So, the government revenue that is the source of both the government employee's salary and his employer's contribution is stolen. This theft is, largely, through taxation, but there is also outright confiscation, debt, and, at the fed level, inflation.

Tue, 05/15/2012 - 20:48 | 2429743 BooMushroom
BooMushroom's picture

So you march on Washington! 100,000 schoolteachers, leading three million citizens, the biggest rally in the USA ever! You say "We worked from age 25 to age 55, and it's 30 and OUT! The government MUST pay us to live from 55 to 85, when we do 30 years and out AGAIN!"
And the politicians point out that you didn't contribute 50% of your pay, even combined with the employer contribution, so how could you expect 30 years of work to pay for 30 years of retirement?
And the politicians point out that your healthcare ALONE for 30 years of care is more than your contribution was, never mind the cash payouts.
And the politicians point out that inflation for the last 30 years was 137%(, so your actual contribution, on average, was much less than you think.
And the politicians point out that they cannot bail out the entire generation, cannot bail out the entire country.
"Fuck 'em" say the three million, and burn the shit down. They lead the revolution, and become the new 1%. Of the United States of Zimbabwe. Congratulations.

Tue, 05/15/2012 - 13:47 | 2428080 Thisson
Thisson's picture

So what?  Nobody cares when a woman gets mad except her husband/boyfriend.

Tue, 05/15/2012 - 14:36 | 2428285 Paul Atreides
Paul Atreides's picture

We are all husbands, boyfriends, brothers and fathers and we all stand to lose our pensions, wake up.

Tue, 05/15/2012 - 15:40 | 2428581 Calmyourself
Calmyourself's picture

Let  them get organized, let them get pissed, let them march..  The key is where do they march?  They can tramp around the magic money tree for al lthe good it will do the money is gone Paul.  Please explain the insurrection these lefties will foment I need a good laugh today..

Tue, 05/15/2012 - 18:29 | 2429250 Paul Atreides
Paul Atreides's picture

They could easily march on Washington along with the millions of other americans with a lost pension...and what does this have to do with dividing people into political left and right? NOTHING a pension is a pension that divisional tactic may work on MSM but not here.

Bunch of heartless trolls...

Tue, 05/15/2012 - 18:58 | 2429399 fattail
fattail's picture

What are they waiting for??  The fiscal and Monetary authorities are stealing their purchasing power they have in their pensions.   Jesus what does it take for these people to get pissed off.  I would prefer to do something to protect my property while I still have it.  once it is gone all you have is an IOU.

Tue, 05/15/2012 - 19:37 | 2429539 Paul Atreides
Paul Atreides's picture

It's unfortunate most of them are still watching american idol, it is also unfortunate that I am getting so many downvotes for trying to defend the pensions of the working class. At least some of the more compassionate readers on ZH will know where I stand and that is on the front lines protecting the working middle class of which most of my family and friends are.

Wed, 05/16/2012 - 00:38 | 2430395 Vlad Tepid
Vlad Tepid's picture

I think I'm with you here a bit, Paul.  These pensions are benefits of employment.  People who wanted pensions (ie security) looked for places that paid them.  Many private companies had pensions but as fewer companies did that those who were looking at getting pensions found that gov't work was the most secure place to get one.  I find it very difficult to get mad at people who signed a contract, did a job according to that contract, which stipulated X kind of pension, and then have that pension dissolve in front of their eyes (for whatever reason). 

As an aside, most state teacher pensions will let you withdraw early with a "massive" tax penalty.  I suggest taking it out, doing something something with it, and then going for a long rowboat ride across a deep lake.  The tax hit will be far less substantial that the whole fund blowing away.  As someone earlier quoted Jeremy Irons:  "The first person out the door isn't panicking."

Tue, 05/15/2012 - 19:40 | 2429543 prole
prole's picture

ALL pensions are expendable except for police pensions; those will never be touched. Wonder why not?

And PS Paul, I see you are comfortable with the practice of robbing Peter to pay Paul non?

As far as the persons "keeping me safe at night" I would be much safer if they would all quit their job yesterday.

Tue, 05/15/2012 - 19:44 | 2429557 Paul Atreides
Paul Atreides's picture

Where did I say I am comfortable robbing one pension to pay another? Please quote me I am dying to know...

Tue, 05/15/2012 - 20:46 | 2429732 prole
prole's picture

You are suggesting such for misdirection maybe? I never suggested at such. I said you are comfortable with stealing from the productive (tax-payers) to fund the parasitical (tax-eaters, incl yourself). Here is your quote sir:

"We cook your meals, we haul your trash, we connect your calls, we drive your ambulances, we teach your kids, we guard you while you sleep. Do not fuck with us!"

You forgot to mention how you indoctrinate the nation's youth at gunpoint, while pepper spraying them during the times you are not beating some regular civilian untermensch with no pension to death, but in between getting red light tickets from you and the pepper spray in the face, I guess we better find time to thank you, or your threat comes into play non?

Thank you Miss Borden, you are a delightful daughter.

PS- would you mind not pointing that gun in my face?


Wed, 05/16/2012 - 00:43 | 2430402 Vlad Tepid
Vlad Tepid's picture

Smart (or well-heeled) people have been homeschooling or sending their kids to private schools for many, many years.  There is no gun involved in public school indoctrination.  The only criminal act is the apathy of most parents toward the EDUCATION (as opposed to TRAINING, which is the fare in public schools) of their children.

Wed, 05/16/2012 - 12:01 | 2431692 Papasmurf
Papasmurf's picture

Snookie and "The Situation" seem to be the consequence and outcome of our pubic education system.  

Tue, 05/15/2012 - 13:52 | 2428094 CPL
CPL's picture

Who would care if they did?


If you've noticed nobody is listening or offering a dialogue on any subject that involves pensions because that would lead to the real question...


Is there anything in them?  More likely than not. 

Wed, 05/16/2012 - 00:45 | 2430403 StychoKiller
StychoKiller's picture

Just like the Social Security "lock box", they're stuffed with candy bar wrappers and used condoms.


Tue, 05/15/2012 - 13:53 | 2428100 el_brio
el_brio's picture

Exactaly... just like in Wisconsin:  "But we were promised these benefits in our contract!"  is their warcry.  They do have a point, however.  The payments will be made.  We will print.  The currency will inflate.  THERE IS NO OTHER OPTION.

Tue, 05/15/2012 - 14:37 | 2428283 LetThemEatRand
LetThemEatRand's picture

Contracts are only enforceable in this country when they benefit the top of the heap, e.g., the "productive class."  Thus, a mortgage company can walk away from its contract with an office building owner in which it leased offices, but expects its mortgagees to honor their contracts.  Jamie Dimon expects he will be paid his bonus no matter how poorly he manages JP Morgan, because his contract guarantees it.  And so forth.

Tue, 05/15/2012 - 16:17 | 2428771 Hulk
Hulk's picture

The Bernank is going to get a rap across the knuckles (not knukles) with a wooden ruler,

  or maybe even get his peepee wacked !!!

Wed, 05/16/2012 - 12:03 | 2431707 Papasmurf
Papasmurf's picture

You're confusing him with PeeWee Herman.  This mistaken identity is very understandable.

Tue, 05/15/2012 - 13:56 | 2428117 blunderdog
blunderdog's picture

Easy fix, Cursive.  Put the schoolteachers and the retired cops in the same pit and let 'em fight to the death over the scraps.  Firefighters too, librarians, janitors, local politicians, judges...whoever.

Televise it and sell tickets. 

Use the proceeds to finance the "pensions" (ha!) of the survivors.

Tue, 05/15/2012 - 14:22 | 2428246 rayduh4life
rayduh4life's picture

Close blunderdog.   How about some kind of cage match with a sack of cash hanging from the rafters.  Put a few DR.s in the cage and watch the fur fly.  Oh and forget the pensions, winner take all.    Or better yet, tag team matches pitting drs vs admin ........

Tue, 05/15/2012 - 22:33 | 2430057 swamp
swamp's picture

Hell hath no fury like a man scorned. Look at all the MEN locked up in jails and prisons for their war on women when she tries to leave or jilts him, he goes wild with rape and murder.

Tue, 05/15/2012 - 14:38 | 2428292 CH1
CH1's picture

IOUs are for suckers

One of the best, most succinct ZH comments EVER.

+ a Bernanke-sized number!

Tue, 05/15/2012 - 12:54 | 2427782 SheepDog-One
SheepDog-One's picture

Basic math? Meh....nothin some Hopium smokin unicorns cant over-ride.

Tue, 05/15/2012 - 14:51 | 2428346 machineh
machineh's picture

Smith's 'basic math' is wrong.

Not one pension fund in this country assumes a 2% rate of return. Stock returns are higher than the dividend yield alone, because dividends and earnings grow over time.

Some pension funds assume too high a return. But Smith couldn't even be bothered to find out the figure.

What a lazy-ass, amateurish essay.

Tue, 05/15/2012 - 20:53 | 2429751 BooMushroom
BooMushroom's picture

Most pension funds assume a 7% return.

Bowing to the realities of a volatile stock market and a weak investment climate, the board of the nation's largest public pension fund lowered its benchmark assumed rate of return.

The board of the California Public Employees' Retirement System voted 9-1 Wednesday to reduce its expected average annual return from 7.75% to 7.5%. That was a quarter of a percentage point higher than what had been recommended by its chief actuary, Alan Milligan.

So the point of the article is, how fucked are they if they can't get 7.75, or even 7.5, but in reality can only get 2?

Tue, 05/15/2012 - 21:16 | 2429817 malek
malek's picture

what a pathetic statement

And you forgot to mention that you believe the official CPI numbers down to the tenth, today just like for the last 30 years!

Tue, 05/15/2012 - 12:53 | 2427786 EnglishMajor
EnglishMajor's picture

Good thing I have a 401K.

Tue, 05/15/2012 - 12:58 | 2427808 GeneMarchbanks
GeneMarchbanks's picture

You shrewd planner. +1

Tue, 05/15/2012 - 13:52 | 2428091 yabyum
yabyum's picture

When your 401k is lost or stolen (POOF!) you will be living under the bridge with those teachers.

Tue, 05/15/2012 - 15:09 | 2428424 jekyll island
jekyll island's picture

Now is the time to convert your 401k into a solo 401k and install yourself as the adminstrator.  You can tell the 401k to invest in anything, even some shiny metals that could get lost in a boating accident when the gubmint comes looking for the $. 

Tue, 05/15/2012 - 13:01 | 2427828 Hard1
Hard1's picture

Your 401K will be seized by the next administration for the benefit of the whole poeple of this great country camarade. 

Tue, 05/15/2012 - 13:04 | 2427846 kinetik
kinetik's picture

Your 401K is safe until the day the Gubmint says, "Thank you for your hard work, here are some 100 year bonds which will cover the money we've just absconded with."

Not that a government worker will know what 'abscond' means but you get my drift.

Tue, 05/15/2012 - 13:14 | 2427905 Totentänzerlied
Totentänzerlied's picture

You kidding? If anyone knows what abscond means, it's a gub'mint em-ploy-ee.

Tue, 05/15/2012 - 13:26 | 2427968 newidea22
newidea22's picture

Hey, I resemble that remark!

Tue, 05/15/2012 - 19:46 | 2429565 prole
prole's picture

This is what a professional absconder looks like:

His pension won't be 30k a year, and neither will your wife's greyghost, unless she worked only on odd thursdays, during leap years. There is something you are not telling us.

Tue, 05/15/2012 - 13:20 | 2427948 fonzannoon
fonzannoon's picture

Which is it. I thought the plan was to devalue the dollar but inflate the stock market so everyone thinks their rising 401k balance will make for a plentiful retirement? It's going to be pure confiscation? I don't know...I think even the average sheep may get mildly upset if that were to happen. Inflate seems to be the easy way.

Tue, 05/15/2012 - 13:27 | 2427971 Ben Burnyankme
Ben Burnyankme's picture

Pay the 10% penalty now, cash in your 201K and take your money and run before its too late!

Tue, 05/15/2012 - 13:29 | 2427992 fonzannoon
fonzannoon's picture

How come everyone on here assumes cashing in their 401k is possible? If you are employed it is basically impossible unless you meet a few specefic circumstances.

Tue, 05/15/2012 - 13:38 | 2428028 RaymondKHessel
RaymondKHessel's picture

Why pay 10% penalty? If you converted to Roth IRA back at the end of 2010 you can withdraw *that* balance on 1/1/2015 without the 10% penalty. Either way you pay the taxes.

Tue, 05/15/2012 - 14:19 | 2428232 HellFish
HellFish's picture

You skip the taxes on the Roth not the penalty for early withdrawl. 

Tue, 05/15/2012 - 14:25 | 2428247 RaymondKHessel
RaymondKHessel's picture

IRA/401K -> ROTH IRA conversion in 2010: Pay 50% Tax in 2012 and 2013 on the rollover balance. On 1/1/2015 you can withdraw this balance penalty-free regardless of your age. Period.

What you would pay penalty on is any gains from 2010-2015+ if you decided to take that too.

Tue, 05/15/2012 - 23:05 | 2430167 ljag
ljag's picture

Taxes r fer suckers!

Tue, 05/15/2012 - 13:58 | 2428130 blunderdog
blunderdog's picture

Important to remember, fonzanoon: the AVERAGE sheep ain't got shit in a 401K.

You're thinking of the affluent--figure about the top 20% of earners.  Most of THOSE folks are too coddled to do anything about anything.

That said, I don't think the Feds are going to confiscate any 401Ks.  I think the banksters are going to LOSE THEM.

Wed, 05/16/2012 - 00:51 | 2430411 StychoKiller
StychoKiller's picture

"I honestly do not know where that $1.6Billion went."  - Jon Corzine

Tue, 05/15/2012 - 14:26 | 2428261 cranky-old-geezer
cranky-old-geezer's picture



It's going to be pure confiscation?


Tue, 05/15/2012 - 15:24 | 2428498 jekyll island
jekyll island's picture

Why do they need to confiscate everyone's 401k when they can devalue them down to zero with money printing?  If you drop a frog into boiling water he's going to jump out. 

Tue, 05/15/2012 - 13:44 | 2428054 Gully Foyle
Gully Foyle's picture


The government worker who authorizes the seizure of 401k's understand exactly what "absconds" means.

Tue, 05/15/2012 - 14:09 | 2428198 GubbermintWorker
GubbermintWorker's picture

I know what abscond means!


I've covered all bases.....defined benefit pension plan, social security to boot, 401K, guns, gold, guns, silver,gusn, ammo, food, guns, land and more ammo.

Tue, 05/15/2012 - 13:53 | 2428113 el_brio
el_brio's picture

I would be MUCH more worried about a ROTH IRA to be quite honest.

Tue, 05/15/2012 - 14:08 | 2428174 RaymondKHessel
RaymondKHessel's picture

Why I like the Roth option - in 2+ years I can pull out any of my principal without penalty but can keep it in a "retirement" plan where I'm protected from some intersting legal and credit scenarios because it is a "retirement" vehicle.

None of this waiting till 59 1/2 nonsense.

Tue, 05/15/2012 - 15:17 | 2428450 crawldaddy
crawldaddy's picture

and that will be gone in the upcoming market collapse.

Tue, 05/15/2012 - 12:57 | 2427802 dbTX
dbTX's picture

Good ting I have a 401k; TODAY

Tue, 05/15/2012 - 12:56 | 2427804 Biff Malibu
Biff Malibu's picture

Congratulations, you found one of the most extreme cases of pension system abuse in the entire country and talked about it like it was the nationwide standard.  I believe you are referring to Vallejo California.  Can you please research your article in more depth and find more of a median department, rather than an outlier?


Tue, 05/15/2012 - 13:09 | 2427875 HoofHearted
HoofHearted's picture

Hey Biff, why don't you find us a better case?

Most of the people in flyover land make a smaller salary because there isn't as much competition for resources. Their pensions can be smaller, but it still amounts to years of the entire budget needing to be set aside for this purpose.

Things are unsustainable. Give me a few examples of where pensions are sustainable.

By the way, Biff, is your last name Hoffa???

Tue, 05/15/2012 - 13:16 | 2427911 Biff Malibu
Biff Malibu's picture

Because I don't write articles, I'm too lazy, and I really don't care that much.  It would be like using the Mets to show that the average professional ball player is overpaid.  I'm just curious to what the industry standard is.  He's doing sensationalistic journalism by using a clearly excessive pension system and talking about it like its everywhere.


And no my last name isn't Hoffa, it's Malibu.


Tue, 05/15/2012 - 17:07 | 2428998 Abiotic Oil
Abiotic Oil's picture

People still watch baseball?

Tue, 05/15/2012 - 13:07 | 2427878 Joe The Plumber
Joe The Plumber's picture

Lol you gettin worried about your government pension?

Tue, 05/15/2012 - 14:41 | 2428308 CH1
CH1's picture

Check out the construction unions - their pensions are WAY under-funded.

Tue, 05/15/2012 - 13:10 | 2427888 Miss Expectations
Miss Expectations's picture

Try this, Biff:

Public employee pensions in New York State

Tue, 05/15/2012 - 13:12 | 2427900 narnia
Tue, 05/15/2012 - 13:14 | 2427901 El Oregonian
El Oregonian's picture

Vallejo, Crescent City, Santa Cruz, it really doesn't matter... Their all SCREWED! Look into it, Gov. Moonbeam, when discussing Cali's financials, understands just how up the ass his state is going to take it.

Grab your popcorn folks, the cartoons are over and the real show is about to begin...

Tue, 05/15/2012 - 13:13 | 2427908 EscapeKey
EscapeKey's picture

New Jersey, New York, Illinios, California, ...

That's just from the top of my head.

Tue, 05/15/2012 - 14:08 | 2428190 blunderdog
blunderdog's picture

Believe it or not: NYS has been very strict about pension liabilities for a very long time.  Although it's a basket-case of a state overall, the tax-rates in NY have always been very high, and there have been laws *requiring* pension funding for virtually everyone.

NYS will collapse too, don't get me wrong, but it'll be a lot later than the states that were more easygoing. 

It's going to be the small states that run out of cash first, for certain, because they have smaller tax-bases, fewer citizens to try to scrape money out of, and far less "protected" fund money. 

Tue, 05/15/2012 - 13:26 | 2427970 NotApplicable
NotApplicable's picture

I live in flyover land near a city about the same size as the one in the article. While the numbers are a bit higher than here, they still have the exact same problem of generating a projected return of 7-8% when we now live in ZIRP4EVA world.

Worse still, since the police here actually contribute to their plan, they are guaranteed 8% on their contributions in the event they take a job somewhere else. So, they see the inevitable writing on the wall, grab that cash and run off to another city. Meanwhile, the avg. time in service for the force has dipped to under five years, as all of the experienced people are gone.

There is no longer any safe pension system. Like I said, ZIRP4EVA is killing them all. As well as your banks, credit unions, insurers and any other entity that lives on interest revenue.

Now, care to actually refute any facts in the author's article, or are you content with merely looking ignorant while pretending you're smart?

Tue, 05/15/2012 - 13:36 | 2428030 augustusgloop
augustusgloop's picture

not that extreme. from the NYT, 6/22/11 about costa mesa (orange county): (you may need to be a subscriber. there, i just revealed my liberal bias) but here are some excerpts: *"The deputy fire chief had retired with a pension of more than $182,000 a year (costa mesa)" * "In 2008, for instance, lifeguards in Laguna Beach started receiving increased retirement benefits as the state’s economy began to slow. The next year, the town’s chief lifeguard retired at age 57, with a $113,000-a-year pension after 36 years on the job." & here is the average for state employees *"A public worker enrolled in the state’s largest pension fund who retired in 2008 with more than 30 years of service received a pension of $66,828 a year, on average, and a retiree with 20 to 25 years of service received around $34,872. Public workers who retire with fewer years on the job receive even less."

Tue, 05/15/2012 - 14:01 | 2428144 Sauk Leader
Sauk Leader's picture

That was not the worst case. Illinois is the Model State for bad Pension Policy. Take your pick, private union pensions like the SEIU and UAW are just as bad.

Tue, 05/15/2012 - 21:16 | 2429811 BooMushroom
BooMushroom's picture

I pick Fresno, they haven't been in the news lately.

3,811 members.
964,000,000 in assets.
Assuming those assets are will actually sell for book value:
964,000,000 x 2% = 19,280,000 per year return
19,280,000 / 3,811 members = $5059.04 per member per year.
5059.04 / 12 = $421.59 per month.

Cat food, bitches !!

Even if you only count the people ACTUALLY, CURRENTLY receiving benefits, (1,606) that's still only $1,000.42 a month with a 2% return.

Tue, 05/15/2012 - 13:02 | 2427805 Mercury
Mercury's picture

There is no way to make the math work such that the pensions and benefits promised can be paid in the real world.

Wishing the math were different does not make it different. We can play around with yields and payouts, but adjusting the margins doesn't change the basic reality that the promised pensions are structurally underfunded in a 2% yield world.

Wishful thinking.  Try this math: 

On one side of the equation we have an all-powerful government  with a liability(x) owed to it's biggest supporters  but not enough money to cover it and on the other side of the equation we have a large store of private wealth and property.

Solve for x.

Tue, 05/15/2012 - 13:13 | 2427904 Joe The Plumber
Joe The Plumber's picture

My business is only worth something because i am talented and work hard. You will find that to be the case of most of the capital stock in this country. When they try to expropriate this alleged " wealth" that has accumulated in this country it will lose its value. A farm producing millions a year in production is worthless if bozos expropriate it and cant manage it correctly for example

You can solve for x but x is not static and value fluctuates depending on how the human capital is treated

Tue, 05/15/2012 - 13:17 | 2427926 EscapeKey
EscapeKey's picture

That's not the case if you base your belief on the Ricardian labour-unit theory.

Which, incidentally, is what Keynes did.

Tue, 05/15/2012 - 13:40 | 2428044 Joe The Plumber
Joe The Plumber's picture

If i understand it correctly the theory posits a fixed labor value per commodity produced whether or not it is a tangible or intangible commodity. If the labor becomes more inefficient then costs go up or production goes down

Tue, 05/15/2012 - 13:47 | 2428073 EscapeKey
EscapeKey's picture

He compensates for poor quality, yes, but the entire flawed point is that value is perception, nothing else. You can't simply dictate something is worth whatever it costs to produce. If the demand is zero, then it's worthless, regardless of the skill level of the producer.

Tue, 05/15/2012 - 21:17 | 2429819 BooMushroom
BooMushroom's picture

I perceive that my plastic rice and sawdust sandwich bread tastes like steak tartare!

Tue, 05/15/2012 - 13:32 | 2428003 Uncle Remus
Uncle Remus's picture

Probably not unlike the whorehouse with a liquor license in Texas the government couldn't turn a profit on to get back taxes. I mean, you really have to work hard to NOT turn a profit on sex and booze.

Tue, 05/15/2012 - 14:22 | 2428238 GhostfaceCracka
GhostfaceCracka's picture

Joe that's true but you know the government is going to try this anyway. They don't give a shit if the value drops because the idiots don't know what to do with your capital, it's just free money to them which they deserve because they are in charge you and everyone else in this country are just peons who don't deserve what you have. This government has lost its last scruples and will seize private pension funds as soon as the moment is opportune to do so. 

Tue, 05/15/2012 - 13:00 | 2427811 Sudden Debt
Sudden Debt's picture

Pensions used to start at the end of the life expectancy.
65 used to be near death.
As much as I'm againt it, pension age needs to go to 75 but our working system needs to adapt and if it doesn't action should be taken.

What might help is fire all public servants and once people hit 60, hire those to do the public work.
Young people need to find work in the private secotr.

Tue, 05/15/2012 - 13:05 | 2427851 Azannoth
Azannoth's picture

Yes 50-60 years ago when all the Pension plans where being engineered the average life expectancy was equal to the assumed pension maturity, lol the System was never designed to be Net Cash Positive since all recipients where statistically dead on arrival

Tue, 05/15/2012 - 13:10 | 2427816 goose3
goose3's picture

I love OTM, but in this case, Mr. Smith has made a math error of his own.


To pay his $120,000/year pension would take $6 million at today's current interest rates.  But what his analysis doesn't include is the use of the principal to pay the benefits--just as anyone with an IRA or 401K would figure on doing.


That is, suppose your average life expectancy is 20 years past retirement.  $120,000 times 20 is $2.4 million, not six million.  And that assumes no interest earned.  Depending on the demographic assumptions one wishes to make, the amount may be somewhat more--or less.  But it is certainly not a $6 million figure.  

The amounts needed to sustain these pensions may not be fiscally achievable anyway, but the numbers reported are not complete.

Tue, 05/15/2012 - 13:24 | 2427964 Joe The Plumber
Joe The Plumber's picture

That is correct and the true answer is about 2.5 milion based on my back of the napkin calculation but the aggregate answer is still close to six million since individuals may die but others take their place and payment must continue. So for each fireman position the aggregate capital base to throw off a two percent return and fund that six figure pension is still six million

Thats a lot of capital to be allOcating to each government job and while the pension system itself doesnt use this type of economic accounting nor must it have a current endowment of six million to fund successive retirements in perpetuity this crowds out other spending and investments indirectly thru opportunity cost

Tue, 05/15/2012 - 14:36 | 2428289 Cheater5
Cheater5's picture

"but the aggregate answer is still close to six million since individuals may die but others take their place and payment must continue"

That's not how pension accounting works as the amount due to the additional individuals would be included in the underfunding.   The biggest problem with pension accounting is the assumptions.  Firstly, pension accounting still lets you use a ~8% return when calculating underfunding.  Additionally, their actuarial tables are dated and thus assume higher levels of mortality that actually are likely to be the case.  Both of those points are likely to point to higher actual underfunding of pensions (as opposed to what the accountants tell you is your underfunding number).  BTW, the assumptions for government pensions are far more lenient than for private plans thus the problem is orders of magnitude worse.

Here is the kicker.  It's not the pensions that are the biggest problem.  Its the health plans as many of the assumptions in those plans are completely meaningless.  At least with pensions you can get a rough handle on the number that you would need to make the pension holders whole.  You cant do that with the health plans...




Tue, 05/15/2012 - 13:29 | 2427974 Big Corked Boots
Big Corked Boots's picture

Agreed. The other error is taking the Fed's implied "2% interest in perpetuity" for real. It isn't, because that rate itself is unsustainable. Markets will find equilibrium eventually even if the global economy somehow stays on the rails.

And that's the real issue - as seen across the world and at different time periods, the promise to pay a pension (or Social Security) is hard and fast but the real purchasing power of the payments is variable. My mom will still get her gummint pension, and in a few years, she will buy a whole loaf of bread with it.

Tue, 05/15/2012 - 14:46 | 2428327 Peter Pan
Peter Pan's picture

2% interest rate in perpetuity may be unreal, but so are those inflation figures of 2%. So what do we do with that problem?

Tue, 05/15/2012 - 15:08 | 2428419 Cheater5
Cheater5's picture

I hate to point out the obvious here but this all depends on the duration of your portfolio and what rates you purchased your bonds at.  IE, a long dated unhedged portfolio purchased at 2% will effectively yield 2% for its duration irrespective of changes in rates unless its sold.  At the point of sale you will be "charged" for any delta in rates and then you get to reinvest the reduced principal balance at the presumably higher rate (in other words going after higher rate yields by liquidating is not a zero transaction cost exercise).  If rates stay down long enough pensions have effectively no choice (unless they want to forgo yield altogether and keep their duration very short) but to roll their existing bond proceeds into lower rate insturments so the longer we stay here (and we've been here a while) the worse it is gonna get.



Tue, 05/15/2012 - 14:28 | 2428264 Cheater5
Cheater5's picture

+1 on this.  Back of the envelope for me comes out at ~2.7 MM for a 30 year payout.  You should roughly value this as a series of 0s (ie, 0 coupon bonds) from the date that benefits accrue.  This assumes no "cost of living adjustment" and a perfectly duration matched portfolio (i.e., no price risk as a result of rates going up and when you have to sell bonds to meet payments).

Dont get me wrong the underfunding in the public (and to a lesser extent private) DB plans is astounding, but these calcs are clearly wrong.


Tue, 05/15/2012 - 15:11 | 2428433 e2thex
e2thex's picture

The varaible that the government is hoping will save them is INFLATION.  You need the Unions to strike for higher wages or a raise in minimum wages.

We're playing out the early 1970's

Tue, 05/15/2012 - 12:58 | 2427822 Snakeeyes
Snakeeyes's picture

I wrote about this yesterday. California alone has an unfunded pension liability of $884 billion.

And forget 401k if Obama is reelected and the Dems get control of the House. They want to fold all 401k and IRAs into Social Security.

Tue, 05/15/2012 - 13:04 | 2427856 j0nx
j0nx's picture

Without a doubt they do. And the people will barely look up from watching DWTS while they do it.

Tue, 05/15/2012 - 13:07 | 2427876 kinetik
kinetik's picture

Hey moron, it won't matter who is in the White House, 401k pensions will be 'nationalized' by a succeeding President whether he is oligarichic (dem) or oligarchic (rep). You foolish Americans still think it's left/right, Democrat/Republican, liberal/conservative. The fact is is the 0.01% is screwing America and no one is going to win.

Tue, 05/15/2012 - 13:15 | 2427916 Augustus
Augustus's picture

By any simple Democrat definition, everyone with a funded retirement account must be rich, else how could they have ever made the contributions?


The solution will be to continually define Rich at a lower level.

Tue, 05/15/2012 - 14:01 | 2428156 blunderdog
blunderdog's picture

     And forget 401k if Obama is reelected and the Dems get control of the House. They want to fold all 401k and IRAs into Social Security.

Can you source this claim anywhere?  Or is this just hype?

Tue, 05/15/2012 - 21:37 | 2429881 BooMushroom
BooMushroom's picture

The report it cites is here

It says in several places that workers should have a guaranteed income from their retirement.

Left to the reader is who will do the guaranteeing, and where the money will come from to guarantee it.

Wed, 05/16/2012 - 09:16 | 2431090 blunderdog
blunderdog's picture

Thanks, yeah, I've read that.  It doesn't say what the reporter claimed it says, though.  That's a lie.

The GRA concept is intended to provide an option to people who currently have money in a 401K and want to move that money into a government controlled "annuity" to provide a guaranteed stream of income.  The motivation for this was recent market instability that left older people's 401K values gutted.  Someone had the brilliant idea that people might *want* to settle for a lower but guaranteed return in order to eliminate the risk of crashes in the equities world.

Most of these claims about "confiscation" are inspired by a fearmongering press.  Some folks will believe anything they read in a newspaper.

It COULD happen, of course, there's just no more reason to expect it than to expect law enforcement will start putting banksters in prison.

Tue, 05/15/2012 - 13:01 | 2427824 LawsofPhysics
LawsofPhysics's picture

I am afraid that most will see such nonsense and go "what is a pension? Oh you mean my 401k?" --FAIL.

Tue, 05/15/2012 - 13:21 | 2427951 Totentänzerlied
Totentänzerlied's picture

Yes the conflation of those terms, other than when performed - explicitly for comic effect - by a trained professional, is indeed quite a treat.

Tue, 05/15/2012 - 13:02 | 2427832 RagnarDanneskjold
RagnarDanneskjold's picture

You know what else will go away? The Chinese real estate bubble, which is starting to make the pension math look good. 

Lang Xianping warns: China repeating Hong Kong's mistakes; affordable housing bubble will destroy real estate and trigger Hong Kong-style recession
Tue, 05/15/2012 - 14:02 | 2428153 Arnold Ziffel
Arnold Ziffel's picture

Wait, is this the Xianping who runs the Golden Wok restaurant downtown next to the Walmart?


Good article BTW. EZ credit always distorts the markets.

Tue, 05/15/2012 - 13:02 | 2427833 j0nx
j0nx's picture

This sounds like one of those no shit sherlock articles that Reggie writes.

Tue, 05/15/2012 - 13:04 | 2427854 Joe The Plumber
Joe The Plumber's picture

It will happen just like in greece and Atlas Shrugged

The unsustainable will not quietly go away, but will cause immense suffering and economic harm as the unsustainable tries to sustain itself

Tue, 05/15/2012 - 13:06 | 2427860 kinetik
kinetik's picture

What's really appalling about the majority of ZH posters it that you guys seemingly want this to happen. You realize that everyone loses when a revolution comes, no one's head is safe and you small, mishapen brained conservatives will be at the head of the line when the guillotines come out.

Tue, 05/15/2012 - 13:17 | 2427915 Storm Bringer
Storm Bringer's picture

I would like to believe that it won't happen; but ignoring the problem will not make it go away.  The math is wrong.... and we know it is wrong, but the media and government are quiet and people will not be preparred for what is going to happen to them - unless the math and assumptions get back in line with reality it will come; we just want to be ready for it - and help as many other people get ready for it as well........  

Tue, 05/15/2012 - 13:21 | 2427940 Augustus
Augustus's picture

If I tell you daily that you should not let your child play in the street, it does not imply that I want them to be struck by a car.  If I tell you that it is parctically inevitibe that there will be an injury, it does not mean that I want it to occur so I can be proved correct.


There is still time for a change in course.  Support that and leave the thoughts of the guillotines with Bill Ayers.

Tue, 05/15/2012 - 13:25 | 2427966 WatchingIgnorance
WatchingIgnorance's picture

Wishing that it is better will not make it so. If they would have let the system canabalize itself (aka 2008), then we would already be rounding the corner to a better life. You cannot feed overconsumption with underproduction. Eventually, the end is reached. Unfortunately, to keep the status quo going as long as possible, it makes the pain to suffer that much greater.

And a last tidbit I read over the weekend: To Big To Fail is about to meet To Big To Sell.

Pull up a seat. Grab a beer and your smoke of choice. Welcome to the party pal . . .

Tue, 05/15/2012 - 13:30 | 2427985 Totentänzerlied
Totentänzerlied's picture

That really is quite an assumption, whose revolution? The German Revolution of 1918–1919
 may be instructive.

Tue, 05/15/2012 - 13:34 | 2428004 LFMayor
LFMayor's picture

damn straight I want it.   I'm not getting any younger, I sure as hell would like to see it bounce while I still have time to rebuild something to leave to my kids.

i sure as hell don't want to kick the can on this mess and leave them holding the bag.

Tue, 05/15/2012 - 13:33 | 2428006 Joe The Plumber
Joe The Plumber's picture

I would like the revolution to occur now so that my young children can have a fresh start in ten years when they hit adulthood.

But the kondratiev spring probably cannot be hastened and everything must run its course.

Tue, 05/15/2012 - 13:46 | 2428075 LoneCapitalist
LoneCapitalist's picture

kinetik,  Today there are many more people that are destitute than there were four years ago. What percentage of the worlds population would you like to be destitute befor this all falls apart?

Tue, 05/15/2012 - 14:30 | 2428271 GhostfaceCracka
GhostfaceCracka's picture

The Jacobins will have to get through a lot of armed rednecks to get me to a guillotine.

Tue, 05/15/2012 - 14:45 | 2428321 cranky-old-geezer
cranky-old-geezer's picture



You realize that everyone loses when a revolution comes,

What revolution? 

There won't be any revolution.  Not even when 401ks are confiscated.

Americans are sheep.  Sheep don't revolt.


Tue, 05/15/2012 - 15:37 | 2428567 LFMayor
LFMayor's picture

no, old fucking bitchy boomers don't revolt.  that's why we're up shit creek in a chickenwire boat right now.

Stock up on your meds and stick around a while longer.  It will be worth the wait.

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