Pensions Timebomb In America – "Global Crisis” Cometh

Pensions Timebomb - Pensions "Are Going To Be A National Crisis"

  • America’s underfunded pension system is “not a distant concern but a system already in crisis”...
  • Tax may explode as governments seek to bail out insolvent pension plans
  • Illinois, California, New Jersey, Connecticut, Massachusetts, Kentucky and eight other states vulnerable
  • The simple mathematical mismatch at the heart of the pension crisis...
  • Why the pension crisis really is “America’s silent crisis”...
  • Pensions timebomb confronts Ireland, UK and most EU countries


By Brian Maher, Managing editor, The Daily Reckoning

"This is going to be a national crisis..."

“This” being America’s woefully underfunded pension liabilities, according to Karen Friedman. She’s the executive vice president of the Pension Rights Center.

(A place called the Pension Rights Center does in fact exist. We checked.)

MarketWatch columnist Jeff Reeves howls in confirmation that “collapsing pensions will fuel America’s next financial crisis.”

“This is not a distant concern,” warns he, “but a system already in crisis.”

According to data supplied by the Federal Reserve, pensions — public and private combined — were roughly 27% underfunded at the end of last year.

By some estimates, America’s public pensions alone are sunk in a $6 trillion abyss.

The issue, approached from any direction, is an impossible knot… a tar pit… a minotaur’s maze of blind alleys and dead ends.

How has the American pension come to such an estate?

Most public pension systems were built upon the sunny assumption that their investments will yield a handsome 7.5% annual return.

But consider…

The average public pension plan returned just 1.5% last year.

Last year marked the second consecutive year that plans undershot the 7.5% return rate, according to Governing magazine.

The same plans worked an average gain of 2–4% in 2015.

A highly technical term describes the foregoing if it goes on long enough... and we apologize if it sends you to the dictionary:

Insolvency.

Briefly turn your attention to the Golden State, for example. California.

State pensions are only in funds to meet 65% of their promised benefits.

And California pins its hopes on that golden annual 7.5% return to make the shortage good.

But it’s in a devil of a fine fix if the average public pension plan only returns 1.5%.

The math is the math.

California essentially depends on returns 400% above the norm, according to financial analyst Larry Edelson.

But California is by no means alone.

We won’t run the entire roll call of shame.

But the great state of Illinois, for one, risks sinking into a $130 billion "death spiral" from its unfunded pension liabilities, as Ted Dabrowski of the Illinois Policy Institute described it.

S&P Global Ratings has even threatened to downgrade the state's credit score to "junk" status.

New Jersey, Connecticut, Massachusetts and Kentucky are also among the worst deadbeats.

But the problems run from ocean to ocean and south to north.

A report from Moody’s reads thus:

For many states and municipalities, exposure to unfunded pension liabilities is already at or near all-time highs. Since cost burdens are already expected to further increase, pension fund investment performance is critical for the credit quality of many governments.

Not even a "best case" cumulative 25% investment return on public pension plans would stanch the blood flow, according to Moody’s.

They say that best-case 25% would merely reduce pension liabilities a slender 1% through 2019 due to weak contributions and poor past investment returns.

“But I don’t have a pension,” comes your response. “This doesn’t concern me.”

Ah, but have another guess — at least if you swear off your taxes in these United States.

Is it your belief that governments will let their prized public pension plans flop?

There are votes to consider, after all.

Jilted pensioners are capable of generating a good deal of hullabaloo, hullabaloo to which the official ear is exquisitely attuned.

Besides, do you think kind Uncle Samuel will turn the politically strategic states of California and Illinois out on their ears?

As our resident income specialist Zach Scheidt argues:

Your tax bill could explode as governments around the country seek to bail out insolvent pension plans. And you know how much politicians like to use your tax money to bail out some constituent. They like to prove their “compassion” with your money!

“Expect to pay higher state and local taxes for fewer services in the years to come,” adds Larry Edelson, before mentioned.

And:

“Don’t be surprised if authorities of all shapes and sizes — from local governments to national agencies — up the ante to get ahold of your assets any way they can.”

We would have to agree. You shouldn’t be surprised in the least.

And we can scarcely imagine the holy hell that would follow another financial crisis.

Illinois Gov. Bruce Rauner warns the state’s pension crisis is driving his beloved Land of Lincoln into "banana republic" territory.

But we suspect the good governor’s mouth ran away with him here...

Can you imagine comparing the venerable, eminently worthy banana republic... to Illinois?

The pension crisis is truly “America’s silent crisis” and indeed the world's silent crisis.

From The Daily Reckoning newsletter


Related Content

85% of Pension Funds Will Go Bust Within 30 Years

Pensions Timebomb in “Slow Motion Detonation” In U.S., EU and Internationally

Investing in Gold In Your Individual Retirement Account (IRA)

News and Commentary

Gold steady on easing dollar, stocks amid hawkish central banks (Reuters)

Technology Shares Lead Stock Rebound; Oil Gains: Markets Wrap (Bloomberg)

Nikkei dives under 20,000 as Asian markets sharply pull back (Marketwatch)

Tech Spoils Bank Party as Stocks, Dollar Slide: Markets Wrap (Bloomberg)

The Yellowstone Supervolcano Has Just Seen 878 Earthquakes in Two Weeks (Science Alert)

Source: Cape Shiller via ZeroHedge

Source: Cape Shiller via ZeroHedge

Robert Shiller: "The Index I Invented Is At Levels Last Seen In 1929 And 2000" (Zerohedge)

How owning a home in Britain became a luxury (Moneyweek)

Petrodollar wars - Gold in your custody cannot be hacked, erased, or frozen (Zerohedge)

Should you own bitcoin or gold?  That’s easy (SCH)

Lessons from ten of the greatest trades of all time (Moneyweek)

Gold Prices (LBMA AM)

30 Jun: USD 1,243.25, GBP 957.43 & EUR 1,090.83 per ounce
29 Jun: USD 1,246.60, GBP 959.88 & EUR 1,093.14 per ounce
28 Jun: USD 1,251.60, GBP 976.25 & EUR 1,101.91 per ounce
27 Jun: USD 1,250.40, GBP 980.31 & EUR 1,111.36 per ounce
26 Jun: USD 1,240.85, GBP 975.56 & EUR 1,109.32 per ounce
23 Jun: USD 1,256.30, GBP 987.70 & EUR 1,125.27 per ounce
22 Jun: USD 1,251.40, GBP 988.36 & EUR 1,120.13 per ounce

Silver Prices (LBMA)

Silver Prices (LBMA)

30 Jun: USD 16.47, GBP 12.69 & EUR 14.44 per ounce
29 Jun: USD 16.83, GBP 12.98 & EUR 14.76 per ounce
28 Jun: USD 16.78, GBP 13.08 & EUR 14.78 per ounce
27 Jun: USD 16.66, GBP 13.07 & EUR 14.79 per ounce
26 Jun: USD 16.53, GBP 12.98 & EUR 14.79 per ounce
23 Jun: USD 16.71, GBP 13.12 & EUR 14.97 per ounce
22 Jun: USD 16.58, GBP 13.09 & EUR 14.85 per ounce


Recent Market Updates

- London Property Bubble Bursting? UK In Unchartered Territory On Brexit and Election Mess
- Shrinkflation – Real Inflation Much Higher Than Reported
- Goldman, Citi Turn Positive On Gold – Despite “Mysterious” Flash Crash
- Worst Crash In Our Lifetime Coming – Jim Rogers
- Go for Gold – Win a beautiful Gold Sovereign coin
- Only Gold Lasts Forever
- Your Future Wealth Depends on what You Decide to Keep and Invest in Now
- Inflation is no longer in stealth mode
- James Rickards: Gold Will Start Heading Higher On “Dwindling” Supply
- Billionaires Invest In Gold
- Brexit and UK election impact UK housing
- In Gold we Trust: Must See Gold Charts and Research
- Pension Funds, Sovereign Wealth Funds, Central Banks “Stock Up” on Gold “Amid Uncertainty”

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

Comments

chubbar foodstampbarry Sat, 07/01/2017 - 08:34 Permalink

I would opt for the "civil war" option. Basic income just cements us as slaves.I have a nitpick with the meme that any Federal gov't bailouts would require higher taxes. The Federal gov't is 20 Trillion in the hole because it didn't tax what was necessary to keep up with the rate of spending (thankfully), most of which was due to illegal or unneccessary foreign wars or aid, IMO. The Federal gov't can bailout any or all of the pensions without doing a damn thing with the tax rates as long as it's willing to put the tab on the national debt bill (which may devalue the dollar in the FX market or have other ramifications).State gov'ts of course can NOT do this and would have to raise taxes or reduce other budgets to accommodate any pension bailouts.

In reply to by foodstampbarry

Manthong chubbar Sat, 07/01/2017 - 12:32 Permalink

 
/* Style Definitions */
table.MsoNormalTable
{mso-style-name:"Table Normal";
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-parent:"";
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin-top:0in;
mso-para-margin-right:0in;
mso-para-margin-bottom:10.0pt;
mso-para-margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Calibri","sans-serif";
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
“the sunny assumption that their investments will yield a handsome 7.5% annual return”Gee, I guess the Bankers/Fed did not bother with that reality as they were draining the economy of vitality and transferring the resources to the <1% with their sage “policy”.  

In reply to by chubbar

Buck Johnson chubbar Sat, 07/01/2017 - 20:52 Permalink

Federal govt. can not or will not bail them out.  I know the reality is that if it's this bad that no law in place is safe.  But the amount of taxes that would have to go up for at least 6 trillion would be great.  Also the govt. would have to take over the pensions and the states and local municipalities would give it to them in order to not have to worry about it.  

In reply to by chubbar

purdySun DontWorry Sat, 07/01/2017 - 16:41 Permalink

Just rec'd $.21 dividend on few K kept in savings. However, IRS sent additional $125. bill for penalty/ interest on "underestimation of quarterly tax pymts". Somewhat < financially astute, but since when is there demand to estimate/ pay quarterly? Feels like heist! Yes, seniors, who tried to personally prepare for retirement, have been ripped off by ridiculous interest rates and their principal has rapidly eroded through inflation. Also observable is equally tragic situation of children and grandchildren. Maybe we'll all Flush together.

In reply to by DontWorry

hootowl foodstampbarry Sat, 07/01/2017 - 12:14 Permalink

You can never correct the problem when you have a population of Jewish moneysucker Chosenites, ignorant Black parasites, Illegal alien invaders who have never paid into the welfare system and are a drain on the national treasury, and moronic Liberal socialist/communists who want to promote and promulgate Universal Guaranteed Income.......and a FED that controls a system of debt-money issuance, a fractional reserve currency scam, and bankster schemes/scams that indenture masses of citizens for most of their lives and sociopathic career politicians, unhindered or hobbled by term-limits, that will destroy the country by instituting policies, building moneysucking bureaucracies and laws and regulations that ensure the collapse of the nation in order to secure their life-long political careers. The uncontrolled influx of millions of East European/faux-Hebrew/Khazarian/Babylonian/Persian charlatans, who called themselves Jews, from the 1880s to the early 1900s sowed the seeds of the destruction of America.  Within 20 years of the egregious importation of that poisonous horde of Liberal/progressive/communist Destroyers of the synagogue of Satan the Land of ZOG had taken root in Washingon D.C. and established the certain economic destruction of America by establishing the FED and ensuring the source of funding, with "money created out of nothing", of all the permawars of the 20th and 21st centuries, and ensuring the sacrifice and slaughter of hundreds of millions of human beings on the alter of ZOG and ZION, and into the insatiable maw of the synagogue of Satan.......With billions more people from all over the world to be sacrificed and slaughtered to come.

In reply to by foodstampbarry

OverTheHedge hootowl Sat, 07/01/2017 - 12:50 Permalink

Personally, I believe that this is a storm in a tea-cup. Any day now, they will start on the 20% per annum inflation meme, and returns will go through the roof. Never mind that your pension won't actually buy anything - the numbers will all add up, and that's what counts, is it not?I don't think we are going to get any crashes; I think we are going to get a nice, gentle inflationary surge, just gentle enough to stop the frogs hopping, but big enough to sort out the debt mess. I can remember a 25% inflation figure - don't see why it can't happen again.

In reply to by hootowl

Wulfkind foodstampbarry Sat, 07/01/2017 - 13:33 Permalink

It's universal income and work slaves until you drop on the Fascist Plantation.None of your have the balls to go full rebellion.  And the Feds have militarized the State and Local cops just for that reason.And you think the States wouldn't put your dicks in the dirt any faster than the Feds.Read up on Shays Rebellion and the Whiskey Rebellion.  Not to mention the Civil War and see what will happen to your silly Militia fantasies. 

In reply to by foodstampbarry

new game Wulfkind Sun, 07/02/2017 - 09:24 Permalink

wulf- exactly the senario that is unfolding now and today, this moment, this hour, right in our face. AND NOTHING HAPPENS TO CHANGE THIS.  the opposition is formidable. they control all the mechanisms of control (of us). mainly the threat of violence. rewmember radical mary jane's postings? wonder where he went... 

In reply to by Wulfkind

Sudden Debt foodstampbarry Sat, 07/01/2017 - 13:59 Permalink

Universal income that will destroy the currency for the common people by constant inflation forcing the people to live like rats.The poor will become dirtpoor, the middleclass will be just poor and the well off will live by a standard the middleclass has richt now and then there's the uberrich.Nobody will get better out of it even if they'll think so at the beginning. 

In reply to by foodstampbarry

silverer Sat, 07/01/2017 - 08:18 Permalink

It's communism delivered via forced pension cuts. Welcome to your communist purgatory. And remember, the majority voted for an all powerful government with central control and planning. The Founding Fathers did warn everyone about that.

divingengineer A. Boaty Sun, 07/02/2017 - 12:22 Permalink

So why aren't prices declining?
Everyone has less money to spend every year, yet the price of EVERYTHING continues to climb.
Unsustainable. When my check has been spent, that's it. I know they say we are living on credit, but that cannot be true, cards max out, bills come due, the little people cannot "roll over" their debt like the wealthy do.

In reply to by A. Boaty

Handful of Dust Sat, 07/01/2017 - 08:22 Permalink

The benefits were unrealistic to begin with so it should be no surprise pension payouts need to be cut. Even my firemen friends whose pension is in trouble said the plan's 8% expected retrun was nonsense. Luckily, they planned accordingly and saved alot on their own (which is what everyone should do; namely, take some responsibility!)Anyway, cut the benfits instead of or in addition to raising taxes. And fix the unrealistic return on those plans.Also, put lots of blame on the federal reserve (greenspan, bernanke, yellen). If our society was "fair" Greenspan would be in jail righ tnow.

Singelguy Handful of Dust Sat, 07/01/2017 - 08:33 Permalink

Easier said than done . The city of Chicago tried to cut the pensions of teachers but the teacher's union went to court and the court barred the city from doing it because it was a violation of the union contract, and the union was not going to budge. Therefore, there are only 2 options. Raise taxes or file bankruptcy ( not sure that is possible for a state to do). The irony is if they raise taxes high enough, the taxpayers will pack up and leave, destroying the tax base, which will lead to insolvency and bankruptcy, regardless of what they decide to call it. The system will collapse and the pensioners will howl and scream but you can't get blood out of a stone.

In reply to by Handful of Dust

dinkum Sat, 07/01/2017 - 08:59 Permalink

A few responses to the premise of this post received the past 72 hours at a community dinner, by phone and at lunch:

  1. This is a Republican conspiracy. 
  2. You read too much. 
  3. Trump's crazy. 
  4. Trump's stupid.
  5. Obamacare should be run the same as Social Security, Medicaid and Medicare because they don't have any problems. 
  6. If Hillary were president this would not happen. 
  7. If Sanders were president this would not ever happen. 
  8. Favorites were two retired seniors with $2+m estates who separately gave me the finger. 

 

Omen IV dinkum Sat, 07/01/2017 - 10:00 Permalink

The responses at their core are fear based -  rationalize anything - once the chaos begins the anger will replace the smug response and then the fear comes to the surface as they accept there are no bailouts and no solutions  -sure - sell the lake house in a declining market when all the would be buyers are also on the government tit and the kids have no free cash flow to carry even the overhead.we are starting the cycle to revolution as the necessary proletariat wakens from hypnosis called consumerism. It was supposed to be Hillary as Dictator executing for the Public "Good" as all this chaos took place with supermajority of illegals / refugees / minorities  - voting for free stuff with minimalist existence. Less than a year from November 16' and all unraveling - they all knew it was bailing wire and scotch tape holding it together.....Fake everything

In reply to by dinkum

dinkum Xena fobe Sat, 07/01/2017 - 20:55 Permalink

Zf: "Out of touch rich bastards.  Tell them the working poor have big plans for them when the SHTF." Xena fobe, my premise is: "Mass guilt fosters dissociative identity disorders". Net worths do not generally detrmine what second life or split personalities a person adopts. My Dad told us at the kitchen table when I was 5 or so that the worst law in America was employee withholding tax provisions where an employee requests their employer to withhold their taxes so they do not have to fund the payments on their own. I found this to be the most common denominator of both types of ignorance -- true ignorance and intentional ignorance of the concept of zero with multiplying and dividing. There is a near perfect negative correlation between policies advocated to reduce income inequalities and basic concepts such as independence, education, welfare, mental and physical health and savings. Most, not all, of the loudest whingers about income inequality are the worst at funding health, education, welfare and pensions. They are not evil. Just their split personalities' acts are evil. One way to describe them is that their evil persona is sadistic believing others expecting duty of care and responsibility by government policymakers are masochists. The two who gave me the finger had children with 150 to 160 IQs graduating summa but unable to raise their own children independent of majority of expenses paid by family donations and government payments.Rich b grandparents cannot deal with the stress caused by guilt so they try their best to make sure other families suffer corruption causing income inequalities.  

In reply to by Xena fobe

Mazzy Sat, 07/01/2017 - 10:19 Permalink

Pensions rob current workers of wage/salary in order to pay for past workers who aren't producing anything.Like any debt based system (think of it in those terms) it has to be maintained or even expanded upon to remain viable. Thus, current workers are not going to be attracted or retained without a pention system in place while they pay for the pensions of those who are long gone.Meanwhile the original pension created a moral lapse among it's original recipients; namely they decided they would never have to save for their future and could be as frivilous as they wanted knowing that money would almost certainly trickle in for them forever.  Put frugality to the wayside! Doing this caused a debt based consumption boom, which had many players interested in it's continuation and rose prices for goods and services across the board, thus damning future generations who wanted an early start along the road of adulthood.

GreatUncle Sat, 07/01/2017 - 10:52 Permalink

Notice how all the entitled politicians are well covered on the pension front with golden pensions?What pension crisis? There is no pension crisis until you start cutting theirs!

U4 eee aaa Sat, 07/01/2017 - 11:21 Permalink

I'm almost thankful I came up in a time when the also ran companies were not giving pensions to their workers. Had I had a pension I have no doubt our company would try to rip us off regarding it today and I would be in a worse off position. So, instead, I had to make do and generate my own retirement income, which I'm well on my way to doing. At this point, I only need the Canada pension plan to survive if I get injured and can't work any more but by the time retirement rolls around I don't plan on being dependent on that either.

Seeing where things were going as I got into the working world in the '80's and onward forced me to study finance and what I learned about the vampire banking cabal horrified me. That may end up being the saving grace as my income should not only be independent of .gov but also of geography, so I should have the opportunity to choose a safe, relatively cheap retirement home on earth and if I need to be a nomad with a magic money pocket I can

montresor (not verified) Sat, 07/01/2017 - 11:43 Permalink

 One. Simple. Ratio..   Workforce Participation Rate/Total Unfunded Liability..   What's that ratio 1/200? 1/500? 1/2000? ..  If people aren't allowed to start businesses or get a job because of excessive regulation, then these liabilities can never be paid.. Those who trust the word of the democratic party deserve to lose everything..  The future of this country will be defined by hatred of the democratic party..  The only path to absolution is total war against the democratic party and all who support them..  One fantastic way to harm the democratic party is through highly aggressive tax avoidance strategies.. If every American followed the tax code to a "T", then in theory, no American would pay taxes beyond the AMT..   Starve the nigger ass beast until it dies of it's own boonery..

mary mary Sat, 07/01/2017 - 12:05 Permalink

Again, I suspect the primary reason is the FED and ECB dictatorially holding down interest rates to deprive the retirement accounts of interest income.  This is Zionist at its finest.  But don't look there; look at the starving children in Syria.

media_man Sat, 07/01/2017 - 13:29 Permalink

Debts that can't be paid won't. The public employee retirees in CA, IL, MA, NJ, NY, etc can take a haircut. Politically it's the only choice. There are limits to what the public will be willing to pay for.

how_this_stuff_works media_man Sat, 07/01/2017 - 13:50 Permalink

" There are limits to what the public will be willing to pay for."

Yes, and there are many people comprising the "public" who have had their own pensions undergo a significant haircut when the company they worked for declared insolvency and turned pensions over to the PBGC.

Apparently it is folks like those who are expected to pick up the slack to ensure "public servants" receive their "due."

In reply to by media_man