A Few Simple Charts Spell Disaster For Public Pension Ponzi Schemes

Earlier today, Milliman released their 2017 Public Pension Funding Study which explores the funded status of the 100 largest U.S. public pension plans.  Not surprisingly, this study only served to confirm many of the rather alarming trends surrounding public pension ponzi's that we discuss on a regular basis.

Starting with a high-level status update, Milliman figures the largest 100 public pensions were roughly just as underfunded on June 30, 2017 as they were on June 30, 2016...not an encouraging development given that the S&P 500 surged 15% over that same period.

This 2017 report is based on information that was reported by the plan sponsors at their last fiscal year ends—June 30, 2016 is the measurement date for most of the plans in our 2017 study. At that time, plan assets were still feeling the effects of market downturns in 2014-2015 and 2015-2016. Total plan assets as of the last fiscal year ends stood at $3.19 trillion, down from $3.24 trillion as of the prior fiscal year ends (generally June 30, 2015). However, market performance since the last fiscal year ends has been strong, and we estimate that aggregate plan assets have jumped to $3.44 trillion as of June 30, 2017. We estimate that the plans experienced a median annualized return on assets of 11.49% in the period between their fiscal year ends and June 30, 2017.


The Total Pension Liability reported at the last fiscal year ends totaled $4.72 trillion, up from $4.43 trillion as of the prior fiscal year ends. We estimate that the Total Pension Liability has increased to $4.87 trillion as of June 30, 2017. The aggregate underfunding as of the last fiscal year ends stood at $1.53 trillion, but we estimate that the underfunding has narrowed to $1.43 trillion as of June 30, 2017.

Meanwhile, 32% of the top 100 plans were less than 60% funded.

Of course, the discussion gets far more interesting when Milliman analyzes the prevailing discount rates used by public pensions compared to independent analyses of where those discount rates should be set. 

As our readers are well aware, we've long argued that public pension funds essentially hide their true funding status by simply choosing artificially high discount rates for future liabilities thus making their present values appear lower than they actually are.  It's a clever scam but one that can only persist until the ponzi runs out of cash.

As Milliman notes, the median expected return of the 100 largest public pension funds in the U.S. is somewhere around 5.9% based on the asset allocations of those funds.

That said, you can imagine our shock to learn that 83 of the top 100 funds used discount rates in excess of 7%.

So, what does that mean?  Well, Milliman figures that overstating a fund's discount rate by just 1% artificially reduces it's benefit liability by up to 15%.  Therefore, given that the aggregate liabilities of the top 100 funds are roughly $5 trillion, each 1% adds about $750 billion in liabilities.

A relatively small change in the discount rate can have a significant impact on the Total Pension Liability. How big that impact is depends on the makeup of the plan's membership: a less "mature" plan with more active members than retirees typically has a higher sensitivity to interest rate changes than a more mature plan with a bigger retiree population. Other factors, such as automatic cost of living features, also come into play in determining a plan's sensitivity. Using a discount rate that is loo basis points higher or lower than the independently determined investment return assumption moves the aggregate recalibrated Total Pension Liability by anywhere from 8% to 15% (see Figure 13).

Adding insult to injury, Milliman notes that the ratio of retired pensioners (those taking money out of the system) to active pensioners (those still funding the ponzi) has surged 16% over the past couple of years. 

Of course, this ratio is only going to get worse over the coming decade as a wave of Baby Boomers retire...unfortunately, that wave of retirements will result in many of them finally realizing they've been sold a retirement fantasy for their entire life.

Here is the full study from Milliman:


38BWD22 SQRT 69 Tue, 10/31/2017 - 19:18 Permalink

  tmosley would likely disagree with my action, but I took some profit in BTC by buying some Au when it was just over $6400 just a little while ago.We'll see if that was a good decision.Like some others here, I have no pension.You can't go bankrupt taking profits (barring owing money)...

In reply to by SQRT 69

FreeNewEnergy Tue, 10/31/2017 - 18:59 Permalink

I have no pension, thus, no worries.Also, no money.Well, I have free rent, booze, weed, land, silver, a motorhome, camper, couple of sheds, lots of tools, a few skills (always learning more), good health, a couple of good friends and a good attitude.All that and a really big eater told me the other day my chili was the best he ever had.currently looking for a decent used car/truck/SUV/minivan (not picky). Taking my time to find the right vehicle. Suggestions welcome. I would like to wait because the market is getting saturated.Pensions? Yeah, good luck.

BandGap FreeNewEnergy Tue, 10/31/2017 - 19:51 Permalink

Wish I was you. Then again, not really. Would love to try the chili.Wife, six kids,  pension, some savings and minimal debt.58 years old and social security won't be shit for me. More than 300K given in, then there are the taxes paid on 4 million in earnings over the last 40 years. Glad I could help people in there effforts on the planet. I sure had fun.Go baby boomers. 

In reply to by FreeNewEnergy

W.M. Worry BandGap Tue, 10/31/2017 - 21:00 Permalink

If you had that kind of income and a non-working spouse you would get about $48,000/year from SS if you retired today at 66 years of age.  I'm just a retired self employed truck driver who used every trick available to reduce my FICA contribitions and I get about $30K/year from SS. Unlike State Goverments and private employers the Federal Government is not revenue constrained they WILL print the money to pay SS obligations.  Whether the benefits will continue to lose value to inflation is another question.

In reply to by BandGap

RedBaron616 Tue, 10/31/2017 - 18:59 Permalink

This tired topic again? Funny, I never read any stories on ZH about Social Security being in trouble, even though it is the biggest Ponzi scheme going. Guess ZH throws this bone out there so everyone can cheer that the government workers get shafted. Of course, a Social Security article would stop the laughter rather quickly, so the pension stories will keep coming while you never hear a peep about Socialist Security.

Endgame Napoleon RedBaron616 Tue, 10/31/2017 - 19:11 Permalink

If these are ponzi schemes, they need to refund the contributions, including the 7.5% (employees) and the 15% (the self-employed) SS contributions that most citizens pay on every dime earned over a lifetime, and rich citizens pay on up to $127,000 per year in income.

If these contributory systems are ponzi es, the lucrative array of 100% free, womb-productivity rewards from the welfare system and the tax-code welfare system, enjoyed by many citizen and noncitizen parents, must just be doozies.

In reply to by RedBaron616

TeethVillage88s RedBaron616 Tue, 10/31/2017 - 19:48 Permalink

Total--Interest on the Public Debt, Table 5 Monthly Treasury Report

2016 Total--Interest on the Public Debt = $430 Billion
1998 Total--Interest on the Public Debt = $363.824 Billion

IRS, Total Outlays—Internal Revenue Service, under Treasury, 2016 = $133 Billion
IRS, Total Outlays—Internal Revenue Service, under Treasury, 1998 = $33.2 Billion

2014 VA Information Technology Systems outlays = $3.432 Billion
2013 VA Information Technology Systems outlays = $3.218 Billion
2012 VA Information Technology Systems outlays = $3.266 Billion
2011 VA Information Technology Systems outlays = $3.355 Billion
Total VA Information Technology Systems outlays = $13.27. Billion in 4 Years

2014 Total Medicare/Medicaid = $1,19 Trillion
2013 Total Medicare/Medicaid = $1.1 Trillion
1999 Total Medicare/Medicaid = $390 Billion

2014 Total Social Security Admin = $908.76 Billion
2013 Total Social Security Admin = $870 Billion
1999 Total Social Security Admin = $421 Billion

In reply to by RedBaron616

TeethVillage88s francis_the_wo… Tue, 10/31/2017 - 22:06 Permalink

Generally the PGBC is for Public Employee Pensions... which is a different breed of cat.

Deeper... Union Funds are managed by smart people... if they are not watching out for union members, THEN you have a Union Problem or a Damn Organization Problem. Unions have to keep track and ask questions!

If Pension is not Union... Maybe the Financial Manager can be sued?

If Pension is not Union... maybe the AG or State Attorney General can figure out who is "Ripping People Off"? Maybe Employees can match the power of money by the Org or Company involved and give shit-fits-to-managers!

In reply to by francis_the_wo…

Stan522 Tue, 10/31/2017 - 19:07 Permalink

They built themselves a house of cards on other people's money and eventually they will run out. I can guaranty they will still pull more desperate measures trying to keep it afloat.....

Lumberjack Stan522 Tue, 10/31/2017 - 19:15 Permalink

WE have a winner!


Harry Markopolos, the investigator who exposed the Bernie Madoff Ponzi scheme, has uncovered a new fraud. The unfunded status of the pension fund of the Boston Transit Authority (the “MBTA”) is $500 million bigger than previously thought, according to Markopolos. This will have a significant impact on the municipal bond market, especially if it turns out that the MBTA’s problems are endemic among similar pension funds.

In reply to by Stan522

new game Tue, 10/31/2017 - 19:12 Permalink

anyone wonder why the markets and bonds are being levitated?  bonds and stocks, 60/40 or 40/60; but either way both are in an "infinete" bubble. stocks should be at 12,000 and interest rates at 5 percent. both imply doom at any level of funding one wants to look at.so the fed must keep creating money to keep the train on the tracks. from all this money, enough is finally starting to create some serious inflation.IT-WILL-BECOME-OUT-OF-CONTROLsimple shit maynard

Let it Go Tue, 10/31/2017 - 19:21 Permalink

More pensions and promises will be broken so get ready for more pain. This is especially true in the public sector where the 25 largest U.S. public pensions face about $2 trillion in unfunded liabilities. In recent years pension funds have not been able to generate the earnings and high returns that they had predicted because interest rates have fallen and growth has slowed so expect things to get worse.While it could be said that several ways exist to cheat or rob those who paid into pensions for years it would be an understatement, more ways exist than you could imagine. One reader on another site compared pensions to a Ponzi scheme where benefits are paid out to its investors from new capital paid in by new investors. More on this growing problem below. http://brucewilds.blogspot.com/2016/05/pension-benefits-will-be-cut.html

TeethVillage88s Cardinal Fang Tue, 10/31/2017 - 21:17 Permalink

Fred used to post charts of GINI Ratio or GINI Coefficient by Race or Race and Sex... I guess the don't want people to see women actually doing better than men.

But I don't real have the kind of data we are talking about.

PIIGS as victims of banks, of businessmen, or of lazy culture, or of lazy, stupid, Elitist Govt?

About 5 choices there.

https://fred.stlouisfed.org/series/GINIWAF (white alone)
https://fred.stlouisfed.org/series/GINIBAF (Black Alone)
https://fred.stlouisfed.org/series/GINIAAF (Asian Alone)
https://fred.stlouisfed.org/series/GINIHARH (Hispanic Any Race)

But base is Gap between Income or Wealth between Rich & Poor... we only really measure the GAP between Incomes of Rich & Poor regardless of Race... but this is done by Country!

https://fred.stlouisfed.org/series/GINIALLRH (ok, all races)
Income Gini Ratio for Households by Race of Householder, All Races (GINIALLRH)
2016: 0.481 Ratio, Not Seasonally Adjusted, Sep 13, 2017

What does .48 mean when ratio was .39 in 1971 ?????!!!!

In reply to by Cardinal Fang

TeethVillage88s Tue, 10/31/2017 - 19:42 Permalink

Who's got a recipe for Vodka and Kikoman Soy Sauce? I'm kind of bored.


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



TeethVillage88s Juggernaut x2 Tue, 10/31/2017 - 20:55 Permalink

Naw. It is men getting used to money & falling in love with money... and corruption just keeps them in the career, the job, the game, and in line for bonuses, salary increases, Promotions, grater access to power... Access to Congress or White House...

Money, Power, Control, Lands, Titles, Access, Status, Position, ... relief from Blackmail, relief from exposure, relief from debt, relief from punishment, relief from prosecution...

It is like Jesuits, Church of Rome, Inquisition, Red Scare, Mob/Mass Group Think to Target an Ideology or Politician... It is just like US/UK Politics!!!

In reply to by Juggernaut x2

VWAndy Tue, 10/31/2017 - 20:54 Permalink

 Yep im waiting for the boomers to come up with a plan. Im another of those people with no pension. So if yall are waiting for me to clean up that mess? Guess what? This shit samitch has your name on it. Would ya like some salt to go with it?

TeethVillage88s VWAndy Tue, 10/31/2017 - 21:01 Permalink

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

2010 Pension Benefit Guaranty Corporation outlays = $5.6 Billion (new Normal)
2009 Pension Benefit Guaranty Corporation outlays = $4.7 Billion
2008 Pension Benefit Guaranty Corporation outlays = $4.7 Billion
2007 Pension Benefit Guaranty Corporation outlays = $4.6 Billion
2006 Pension Benefit Guaranty Corporation outlays = $4.4 Billion
2005 Pension Benefit Guaranty Corporation outlays = $3.6 Billion
2004 Pension Benefit Guaranty Corporation outlays = $3.2 Billion
2003 Pension Benefit Guaranty Corporation outlays = $2.5 Billion
2002 Pension Benefit Guaranty Corporation outlays = $2.1 Billion
2001 Pension Benefit Guaranty Corporation outlays = $1.4 Billion

In reply to by VWAndy

Rik Haines Tue, 10/31/2017 - 21:18 Permalink

It wouldn't surprise me to see that the baby boomer population mysteriously starts to rapidly decline in the near future. Can't pay out to someone who can't collect.