"Almost A Given It Will End Badly": Vanguard Founder Jack Bogle Says U.S. Pensions Are Doomed

Legendary investor Jack Bogle is apparently not all that optimistic that public pension funds in the U.S. are going to be able to meet their future funding obligations.  Speaking with Bloomberg earlier today, Bogle predicted that bond returns will be a paltry 3% over the next decade, with stock returns not that much better, making it almost impossible for pensions to meet their arbitrary 7.5%-8.0% return hurdles.

The founder of Vanguard Group thinks a conservative portfolio of bonds will only return about 3 percent a year over the next decade, and stocks won’t do much better, with a 4 percent annual gain over a similar period. This is “totally defeating” for pensions, which “are not going to be able to meet their 7.5 percent or 8 percent obligations,” Bogle said in a Bloomberg Radio interview that aired Thursday.


“The only return you get on a bond is from the interest coupon,” with fluctuations in prices eventually evening out and becoming relatively negligible over the longer term, he said. Given a portfolio of about half corporate bonds and half U.S. Treasuries, the blended yield is about 3 percent today.


“So that’s what you get over the next decade,” he said.


“It is almost a given that it will end badly,” he said.


Of course, Bogle's sentiments on the imminent demise of public pension funds should come as no surprise for our readers as we've frequently warned that the arbitrary nature of pension accounting rules, primarily the ability to randomly pick discount rates out of thin air, has allowed managers to consistently understate liabilities for decades. Moreoever, as we pointed out in a post entitled "An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion," the reason that the public pension ponzi has been allowed to persist by regulators for so long is quite clear...the truth is simply too scary.

We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.  We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we've seen estimates that suggest $3.5 trillion or more might be more appropriate.  We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates.  Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.   

Pension Underfudning

And while the sentiments expressed by Bogle should be a substantial overhang for the economy, no one seems to care for now.  Certainly legislators have no incentive to address the issue... the country's 15 million union employees may not be so happy about supporting their political candidates if they knew their retirement plans were insolvent... much better to let the system break in 20 years then fix it with a massive taxpayer bailout after convincing the electorate that the problem was somehow created by top earners not paying "their fair share."  After all, it's only $23,000 per man, woman and child.


MonetaryApostate totenkopf88 Thu, 12/07/2017 - 16:39 Permalink

Raping serfs, it's all about lies, enslavement, & control.How many times you gotta get raped by the blank check bankers to wake the hell up?Fake money, fake debt, fake value, fake news, fake investments, fake markets, fake history, fake leaders, fake events, fake elections, fake foods, fake medicines, yes fake everything!  https://plus.google.com/collection/QorNbB

In reply to by totenkopf88

junction totenkopf88 Thu, 12/07/2017 - 17:28 Permalink

Yet at the same time you cheer on the cops who retire on 75% tax free disability pensions after 20 years of service with pensions over $100,000 for handing out traffic tickets.  How many government employees do you know who get $80,000 a year pensions?  That is the problem here, guys who make up stuff as they go along.  What about the $150 trillion dollars worth of derivatives at CitiGroup, Bank of America and JPMorganChase that the FDIC now insures?  No problem there, of course, according to geriatric case Bogle.

In reply to by totenkopf88

Cloud9.5 bamawatson Thu, 12/07/2017 - 16:59 Permalink

Walmart, Walgreens, CVS, McDonalds, Wendys, Olive Garden, Red Lobster, and the entire medical sector owe their existence to pensioners.  The pension payouts stop and you end up with economic collapse.  A bipartisan bill will pass congress creating a supper bond that will be bought by the Fed and pensions will be backed up.  Perpetual funding is but a mouse click away.    

In reply to by bamawatson

The Alarmist Cloud9.5 Thu, 12/07/2017 - 17:32 Permalink

No worries ... there's all that private company pension money sitting there (yeah, on average they're only 75% to 80% funded on an IFRS basis, but that's far better than the Public sector) and all those IRAs and 401(k)s with money that needs to be protected from the viscissitudes of Mr. Markets, so in the name of solidarity and security it will all be rolled up into one giant "super-safe" pension plan for all Americans, to supplement Social Security, of course.

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Dickweed Wang Fundies Thu, 12/07/2017 - 16:53 Permalink

Whatever you do.....go out with a bang. Who I see going out with a bang are some of the pension managers and politicians that caused the whole problem in the first place.  I guarantee that in the near future we're going to see headlines about some 65 year old guy that put in 40 years working for XXXXX and went postal because he was just told he got screwed out of his retirement.The thing that really stinks about this whole issue is "they" had no problem at all coming up with trillions of dollars to give to the banks back in 2008/2009, or "they' had no problem spending trillions of dollars on all of the bullshit wars the US has been involved in over the last 20 years, but "they" can't seem to find 1/10th of that money to make sure retirees don't get screwed.  Those people worked under an agreement that they would get X dollars when they retired and it is not their fault that the people in charge totally mismanaged the whole process.  Also, if people feel the benefits for those kind of pensions are too rich then fine, change things for the future - don't go back on promises that were made decades ago.

In reply to by Fundies