This is the chart of doom for government workers across the land and the taxpayers funding these pension plans with their hard earned money. The truly frightening fact isn’t how underfunded these plans are today. The frightening fact is the change from 2009. The stock market bottomed out in March 2009. It has risen 120% since March 2009. The funding ratio of these pension plans should have soared higher, along with the stock market. Instead it has declined in most states. My great state of PA has seen its funding ratio PLUNGE from 85.45% in 2009 to 65.61% in 2012. This means that the states have not been contributing the required cash into these plans. This is because they would need to raise property taxes by 10% to 20% to honor the promises they’ve made to government workers.
Now for the kicker. They have been using an 8% long-term return assumption for their plans. Stocks are now overvalued to the point where the long-term expected return is 2.5% and bonds will be lucky to return 0%. Put that in your model and smoke it. If a realistic assumption was used to calculate the future value of these pension assets, you would slice 20% off each of those funding ratios. Now, with the stock market bubble reaching a new peak before the next pop, these pension plans are about to take a 30% to 50% hit over the next few years. Bye Bye pensions.
If you are a government employee and expect your state to honor their pension promise to you, then you are a delusional fool. It’s just math. The taxpayers are not going to allow their real estate taxes to be doubled in order to pay your pensions. I suggest you make alternative plans for your retirement. I hope you like the taste of cat food. The politicians and government bureaucrats lied to you.