Five Trillion Dollars! Doomed US Pensions' Shortfall Now The Size Of Japan's Economy

Scores of public pensions across the United States are so massively underfunded that the shortfall is roughly equal to Japan's GDP - the world's third-largest economy, according to Moody's Investors Service.

State and local pension plans in the U.S. now have less than three- quarters of the money they need to meet their promised payouts, their lowest level since at least 2001, according to Public Plans Database figures weighted by plan size. In dollar terms the hole for state and local pensions is now $5 trillion, according to Moody’s Investors Service. -WSJ

If governments don't increase taxes, convince pensioners to take less than they were promised or divert funds from elsewhere, an increasing number of funds face insolvency, reports the Wall Street Journal

In Kentucky, for example, a major pension for state employees had around 16% of what it needs to fulfill its obligations based on 2017 fiscal year figures, according to the Public Plans database which tracks state and local pension funds. A Chicago municipal employee fund had less than 30% of what it needed during the same fiscal year, while New Jersey's state pension is so underfunded it faces insolvency in 12 years according to a Pew Charitable Trusts Study.

For an example of what happens when a pension hits a brick wall, look no further than Central Falls, Rhode Island - a city of 19,359 which was forced to cut monthly checks to retired police and firefighters by as much as 55% as the entire town tried to stave off bankruptcy. Alas, the town still filed in 2011 - and while its financial situation has improved, retired city employees aren't getting their full pensions back.

Paul Grenon

“It’s not only a financial thing,” said 73-year-old retired Central Falls firefighter Paul Grenon, who retired after a falling wall punctured his lung, broke his back and five ribs, and left him unable to perform basic tasks required for the job like climbing ladders. “It really gets you sick mentally and physically to go through something like this. It’s a betrayal, as far as I’m concerned.

After the 2011 bankruptcy, an event that received national attention amid predictions of widespread municipal failures, retirees agreed to 55% cuts because they feared facing even deeper cuts later.

...

The concessions helped Central Falls emerge from bankruptcy in 2012 and create a “rainy day fund” that now holds $2 million.

...

Mr. Grenon, the firefighter who retired after he was injured, says the pension reduction left him without enough money each month to cover a $300 prescription lung medication. He has medical coverage but said the medication is beyond what is covered. -WSJ

The Journal notes what we've been pointing out for years - namely that when times are good, politicians make overly generous promises, while public-employee unions make unrealistic demands that elected officials acquiesce to.

As a result, former lifeguards in Laguna Beach, CA enjoy $200K pensions, while retired bigwigs rake in even more - such as former Penn State president Rodney Erickson who receives $477,950 per year from the state. 

Former Penn State University President Rodney Erickson

That's all compounded by longevity, while the risk of the next financial crisis stands to crush already-distressed pensions. 

Extended lifespans caused costs to soar, as did increasingly expensive medical care, which unions put at the center of contract negotiations, among other benefits.

A technology-led stock market boom in the late 1990s produced a brief period of surpluses in pensions, according to figures from Pew, before deficits began to creep higher in the mid 2000s. Deficits accelerated following the 2008 financial crisis, which caused steep losses for many funds just as large numbers of baby boomers began to retire. -WSJ

For a taste of what may be to come, State and local pensions lost around $35 billion between 2008 and 2009, according to Pew, while liabilities jumped by over $100 billion per year. And as the Journal points out, "not even a nine-year bull market in stocks could close that gap."

Government officials, taxpayers and public-sector employees are not on the same page when it comes to solutions. Puerto Rico's pension board, for example, which filed for the largest-ever US muni bankruptcy in 2017, certified an average 10% pension cut for certain retirees as part of a plan to bring the island back to solvency. Meanwhile, the governor has promised not to implement it - portending a lengthy court battle. 

In Kentucky, a judge ruled in June that a reduction in pensioner benefits championed by the governor was unconstitutional because of the way the law governing the payouts was passed. Meanwhile a state's attorney general vehemently opposed the legislation - yet another battle that could end up with the state Supreme Court deciding the outcome. 

And in California, a handful of cases before the state's Supreme Court are putting an influential 1955 law to the test that prevents public employee benefits from being cut - something Governor Jerry Brown predicts will occur during the next recession if the rule is loosened. If California relaxes the legislation, it would set precedent that other states may follow to accomplish deeper benefit cuts. 

The prospect of lower benefits is particularly daunting for pensioners in their 60s. Those older are likely to die before a large reckoning, while those younger have years left in their careers to make new plans. But many in their 60s have spent four decades assuming a financial promise that is no longer guaranteed.

...

Retirees in other cash-strapped states said they expect to lose some of what they have been promised. “It may sustain itself before I die,” Len Shepard, 68, a retired teacher in Pennsylvania said of the pension system in his state. “But I don’t see how it can continue to do so.” -WSJ

 

Comments

NoDebt COSMOS Tue, 07/31/2018 - 23:04 Permalink

I think I get it now.  They're eventually going to zero out all the pensions and replace them all with UBI (Universal Basic Income).

Sure, the pensioners will scream "But I was promised much more!"  But if all of us hundreds of millions of commoners are getting a little tiny something-for-nothing are we going to give a shit about them and their stupid promises?  Probably not.  Fuck the pensioners.  I want my $200/mo. of UBI.  

 

In reply to by COSMOS

Femora67 NoDebt Wed, 08/01/2018 - 00:52 Permalink

Yes (I as a Pension holder), but you have forgotten one thing... (A thing of some importance I suspect...)

They (the Pensions) cannot go legally bankrupt. Sure, axe current police activiities 50-90 percent, or fireman, or current teachers (take your pick) ... ... ... "Pay me bitch, I have a pension!"

Yes, legally I get paid my full reward, but everything else gets burned in light/cause of this. This is by design... once the local authorities have bit the dust, well, then, we... takeover. The UN will be called upon to quell any, how does one put it..., any social or anti-social givings/misgivings?

My, my, my, legal pensioners vs. illegal "immigrants"? How will such a thing ever play out? ... :)

 

I couldn't have set it up better myself...

 

Peace Forever.

You Know Who

In reply to by NoDebt

Utopia Planitia Femora67 Wed, 08/01/2018 - 01:35 Permalink

"They (the Pensions) cannot go legally bankrupt."

Sorry, not true.  demoncraps will have no problem changing any applicable laws to do whatever the fvck they want.  Plus, if the money isn't there are you going to take a worthless IOU?  Guarantee you the IOU would be legally ruled to be valid payment.

Those who didn't stack while they were working are going to be sorry.  Only a fool believes a pension is going to be their golden parachute.  Nobody employed in the private sector believes in farting unicorns.  Did you?

In reply to by Femora67

Bloodstock Utopia Planitia Wed, 08/01/2018 - 03:57 Permalink

Yep just change the laws or invent a loophole. The demonrats got the union votes, now the illegals will give it up. Fucking union punks continue to contribute to their own  demise. Watch Slick WIllie sign NAFTA. Watch the jobs go over seas. Expect everyone else to pick up the tab. Dumb. It's not going to happen much longer. Pensions HAVE to go broke, law or no law. Dumb fucks.

In reply to by Utopia Planitia

Bendromeda Strain Femora67 Wed, 08/01/2018 - 08:39 Permalink

Yes, legally I get paid my full reward

Unless your benefactor owns the printing press you'll get a percentage of nothing and like it. Corrupt laws that promised the impossible will get changed. Didn't pay into Social Security? Take your disability and shove that too.

For the misinformed here, the Federal system was overhauled long ago with the Civil Service Retirement System being replaced by Federal Employees Retirement System. This involved contributions to both Social Security and a 401K Thrift Savings Plan.

State and local municipalities could have gotten a clue and followed suit, but union threats and complacency killed any chance of that.

In reply to by Femora67

waspwench Femora67 Wed, 08/01/2018 - 15:00 Permalink

The pension fund may not go bankrupt, but the state can.   AND laws can be changed.

If there is a situation where there are no police, no firefighters, no teachers, no services, no infrastructure maintenance in a state, but pensioners are still being paid pensions (pensions which are far, far more generous than anything available to non-state employees) then something will have to give.   Property owners will see property tax hikes, but many property owners are retirees themselves, and will be unable to absorb the property tax hikes.   They will then find themselves unable to sell because no-one will want to buy a house and pay the exhorbitant property taxes.   I am retired and my property taxes increased $1,500 last year.   My income did not increase at all and is actually worth less because of inflation, meanwhile, public sector employees are a protected class.

In reply to by Femora67

Antifaschistische COSMOS Tue, 07/31/2018 - 23:46 Permalink

The only thing that will "fix" the pension problem is a 10% inflation rate for 12 straight years against a fixed pension distribution.

..this my friends, will be the solution.  they'll get their check and an effective cut of 10% per/year.  If you are in this position where you will be the recipient of a nice fixed income pension distribution....you better be stacking long, hard, and fast right now.

In reply to by COSMOS

Teamtc321 1777 Tue, 07/31/2018 - 23:18 Permalink

Let the .gov tit suckers pensions crash, I'm going to be buying LIBTARDs houses for 30 cents on the dollar or less, LMAO. And if your a LIBTARD diehard after listening to your bullshtt story, I'm going to jew your nasty ass down at the closing another 10% just to fuck you in the ass. Oh please crash soon, I will have so much fun finding your nasty asses in preforeclosure, divorce, suits, etc......, fuck you LIBs. 

 

HOPE, HOPE AND CHANGE!!!! 

In reply to by 1777

umdesch4 Teamtc321 Tue, 07/31/2018 - 23:44 Permalink

I wish you the best with this plan, but I think I see a flaw. You'll be competing against foreign investors willing to buy those houses for 40 cents on the dollar. Maybe even 50. It'll be just like a few years ago. Every time I tried to buy a house, some Asian guy put in an offer 15% above the asking price, and scooped all of the other offers. Remember, the richest 0.1% of China is still 1.38 million people.

I'm sorry. I really like your idea. It was putting a smile on my face until I remembered the foreign investors fucking up all my plans.

In reply to by Teamtc321

Teamtc321 umdesch4 Wed, 08/01/2018 - 00:37 Permalink

Let them put the offers in, from abroad. Belly to belly buying wins. If you loose a deal, so what, next. I'm a RE investor and don't love any deal but let me tell you, find those in need that can be chatted with, its over.... Take a crash like we chat about above, it will be like fishing for small mouth bass during the may fly hatch, don't need to catch them all, just a few big/high profitable fish.........

I buy in Texas now, I get little pressure from abroad. We do however compete against every fat ass who has watched Fixer Upper 72 times and is now pro a with a LOC. Now, look at wholesaling back into big dollars from abroad as you suggest was an issue or use them for a private money source, with your old strategy, flip them back into the sharks for a good profit controlling the paper only or do a transactional closing for higher profits when the deal shows its hand..........

Use software to locate the deals in mass, Get you a LIB, enjoy the hunt.......

 

HOPE, HOPE AND CHANGE!!!!

In reply to by umdesch4

AGuy Teamtc321 Wed, 08/01/2018 - 01:03 Permalink

"Let the .gov tit suckers pensions crash, I'm going to be buying LIBTARDs houses for 30 cents on the dollar or less,"

Good luck with that plan:
1. You competing against REITs, Banks, Institutional investors, Hedges, etc. They buy them using free gov't money at prices well above 30 cents on the dollar.
2. Money print will set the floor price on real assets. Back in 2008-2009 Housing prices fell, but they didn't collapse (well except for areas like detriot that nobody wants). I suppose you could buy up whole neighborhoods in Detriot\Baltimore for less than 30%.
3. If you can get it for 30% its because there are problems: Crime, Taxes, no jobs, etc.

In reply to by Teamtc321

Teamtc321 AGuy Wed, 08/01/2018 - 01:21 Permalink

I'm closing 2 in the next 7 days bud, so I have good luck with this plan, now.........:) Closed 1 last Monday, nice huh? I will kill it when the fishing gets good.....Fishing is better on a down turn in the RE market for those who have a clue.....Fishing for LIBS will be a blast, lol. 

 

Problems in the areas I fish are not related to Crime, they are generally related to problems with money, moved, divorced, probate, wife hates it, and on and on. I'm in Texas if you missed it, we don't have a jobs problem here, at all. Find pockets close to centers that can be commuted for your exit, buy only when you are 30-40% wholesale and 60-65% ARV. I'm a General and hate remodeling now but will do it if the numbers are in favor.  

Your obviously not a RE investor from your brilliant post above, so good luck with your plan, pal. Doesn't it feel so good knowing it all? Thought so.......... 

 

 

HOPE, HOPE AND CHANGE!!!!

 

In reply to by AGuy

AGuy Teamtc321 Wed, 08/01/2018 - 12:43 Permalink

"I'm closing 2 in the next 7 days bud, so I have good luck with this plan,"

At the peak? Home & land prices only have one direction to go until next QE: Down.

"our obviously not a RE investor from your brilliant post above"

Obviously you like buying at the top of the market! But its your money & its a semi-free country. Fools and money quickly part ways.

In reply to by Teamtc321

Teamtc321 AGuy Wed, 08/01/2018 - 13:09 Permalink

Well bud, I’m parting ways with 20 grand Friday on 1 of them at closing. Like I said wholesale them if you can. 

The other, we are going to remodel the 1720sq ft home, purchase at 25k, remodel cost 38k and will exit at 138k. 

Obviously you have no clue what we do so go encourage your key board with someone who cares. 

Are you a LIBTARD with a underwater pention? Lmao.... 

 

HOPE, HOPE AND CHANGE!!!! 

In reply to by AGuy

PrintCash JibjeResearch Tue, 07/31/2018 - 23:57 Permalink

I’m suppose to feel bad for the government pensioner who fucks the taxpayer up the ass at every opportunity, makes it more difficult, time consuming, and expensive every year to run my household and business, and who spends most of their time trying to be less productive and more of a nuisance?  Sorry, not getting any sympathy from me.  You can fuck off.  

In reply to by JibjeResearch

Buck Johnson WakeUpPeeeeeople Wed, 08/01/2018 - 13:34 Permalink

Yep and just you wait, most of these states and local govt. will cut retires pensions by at least 50% or more hell they may even lose it.  Because one, legally the Federal govt. can't bailout these pensions because of the law.  And two, if they even attempted to bailout one every state and local govt. pension will demand a bailout and it will be in the trillions. 

I see many of these govt. pensioners getting screwed on this.

 

In reply to by WakeUpPeeeeeople

HRH of Aquitaine 2.0 Tue, 07/31/2018 - 22:53 Permalink

"After the 2011 bankruptcy, an event that received national attention amid predictions of widespread municipal failures, retirees agreed to 55% cuts because they feared facing even deeper cuts later." .45 on the dollar isn't bad. A lot more people will be lucky to get .10 on the dollar. That would really suck, expecting that $1K dollar check and only getting $450.

Will people wake up and get ready, in advance? Doubtful.

TrustbutVerify CheapBastard Tue, 07/31/2018 - 23:49 Permalink

Oh, because teaching is the "most difficult job on the planet."  Forget ironworkers, construction workers, miners, day laborers, Fahgetaboutit.  School teachers have it so much worse.  At least that's what we've been told thousands of times.  (Not that their union hasn't made their jobs more difficult.) 

Oh, and city employees...now that is a difficult job!  

So much of this pension problem is simply (gleeful) willful ignorance.  Those that, decades ago, and since, spoke up saying pensions weren't working, the numbers and promises wouldn't work, were roundly shouted down - silenced.  Many corporations took a look at those same numbers and got away from pensions a couple of decades ago.  How stupid did these organizations have to be to stick with them?  

And perhaps the most bizarre...those that were honest with people and told the truth about pension plans' lack of long term sustainability were, and still, are seen as being the bad guys!  

Though slowly the #walkaway movement and red pill experiences are emerging at an quickening pace.  

In reply to by CheapBastard

AGuy CheapBastard Wed, 08/01/2018 - 01:09 Permalink

"Bankruptcy and renegotiate most of those pensions."

Not until they crush the residents & local business with higher taxes. The politicians are also part of those state\local pensions. They don't want to see their pensions go poof! and since they can raise taxes, they will. You also see them decimate public servants: Firemen, Police to cut costs.

In reply to by CheapBastard

therover Tue, 07/31/2018 - 23:01 Permalink

Bet a 55% cut to the fire fighter pensioner hurts a heck of a lot more than a 55% cut for the Penn State dude (if it ever happened). 

Maybe they should start capping the pensions first. Fuck it.