Many state and local public pensions are on life support. Public officials are negotiating with unions, taxpayers, pensioners, the courts and electorate to come up with a solution. Everybody wants a bail out at the expense of others.
The Brookings Institute recent study indicates a huge problem:
“As of 2014, state and local governments sponsored nearly 4,000 pension plans that covered almost 20 million retirees, employees, and former employees who have not yet claimed benefits.
… Many states and municipalities are struggling to fund defined benefit pension plans for their employees. … (I)n order to improve their pension status, almost every state implemented some combination of lower benefit accruals and higher employer or employee contributions.
But underfunding problems have not disappeared, and they are likely to become more difficult in the future, putting pressure on other state and local spending programs and taxes.”
A tale of two cities
Dallas, Texas.
Popular blogger Mike “Mish” Shedlock recently wrote, “Dallas Police Retiring in droves Taking Lump Sum Pensions, Fearing the Money Isn’t There (And it isn’t)”.
The New York Times wrote, “Five Dallas Officers Were Killed as Payback, Police Chief Says”. Combining civil unrest with the underfunded pensions, Mr. Shedlock’s comments should be no surprise:
“Dallas’s police and firefighters are quitting in droves, wagering that financial-market losses are about to render their promised pensions too good to be true.
With the city considering benefit cuts to help close a retirement-fund shortfall that grew by $1.2 billion last year, more than 200 workers have decided to retire or leave, about double the normal rate …
“I’ve had 40 to 50 officers in my office this week asking what they should do,” said James Parnell, 52, secretary-treasurer of the Dallas Police Association and 25-year veteran. “They’re very nervous about what is going to happen, they’re fearing a run on the money.”
The Pension Board wants the city of Dallas to contribute $1.1 billion to shore up the fund. The local ABC news reported Dallas Mayor Mike Rawlings response:
“This is much like a Bernie Madoff scheme, if you ask me,” he said.
…(P)ast pension fund members guaranteed themselves 8-to-10 percent returns in their retirement fund called Drop. Some left with millions in their accounts.
On top of that, there were bad investments.
The pension board wants the city to contribute $1.1 billion in 2018, but to do that; they would have to increase the property tax rate by 130 percent.
The mayor says the city has already paid its share, and to do more could be illegal.”
It’s pretty simple; the money is not there. A mere 130% property tax increase would do the trick.
Might we blame lawmakers pandering for union votes? The New York Times points out the deal was doomed from the start:
“Guaranteed 8.5 percent interest, on tap indefinitely for thousands of people, would of course cost a fortune. But state lawmakers made it look “cost neutral,” records show, by fixing Dallas’s annual pension contributions at 36 percent of the police and firefighters’ payroll.
… Buck Consultants, the plan’s actuarial firm, warned that those assumptions were shaky, and that the changes did not comply with the rules of the state Pension Review Board.
“The Legislature clearly ignored that,” Mr. Kleinman said. The plan’s current actuary, Segal Consulting, reported in July that 23 years of unmet goals had left Dallas with a hidden pension debt of almost $7 billion.”
The police and fire fighters had a union contract and fulfilled their share of the bargain. When the airlines went bankrupt their pension benefits were cut. I knew a retired international pilot whose benefits were cut in half. It’s no wonder many are choosing a lump sum payout.
What about the taxpayer? Should they be responsible for pension shortfalls when they are struggling to look after their own retirement? Increasing the property taxes radically will cause a mass exodus. Residents will vote with their feet, while property values plummet.
The politicians went one step further:
“… (T)he pension trustees set about trying to capture the 9 percent annual investment returns. They opted for splashy and exotic land deals – villas in Hawaii, a luxury resort in Napa County, Calif., timberland in Uruguay and farmland in Australia, among others.
The projects called for frequent on-site inspections by the trustees and their plan administrator, Richard Tettamant. …(O)fficials were spending millions on global investment tours, with stop-offs in places like Zurich and Pisa, Italy. Pension officials argued that their travel was appropriate and their investments were successes.”
Now they are negotiating for a bail out. They screwed up and want others to bail them out.
Houston, Texas.
ABC News reports, “Houston City Council Approves Pension Reform Plan”.
Houston City Council overwhelmingly approved a major pension plan … meant to address a $4-billion-hole left by the city’s growing pension obligations.
“It was a strong vote on a tough and complicated issue,” said Mayor Sylvester Turner, who was brimming with excitement. Turner had spent the past 10 months negotiating with City, Police, and Fire pension boards to find common ground in what critics agree is currently an unsustainable system.
… (T)he entire package heads to the state legislature. Lawmakers must approve the changes next year in order for Houston taxpayers to see real relief that would total $2.5 billion dollars.
… If you are a Houston taxpayer, your taxes will not increase. In addition city employees, police officers, and fire fighters who are already retired will not see their paychecks decrease.
However, for current city workers and future employees, there is a complex formula of benefit decreases.
… Rank and file fire fighters have been voicing their displeasure … saying the city has shortchanged them.
But the mayor says no change would have meant a bankrupt Houston. That would have meant a heavier burden on taxpayers, and no pensions for anyone.
Taxpayers and current retirees breathed a sigh of relief. Current city workers are seeing their benefits reduced to pay for the mistakes of others; similar to what happened in the private sector over the last 25+ years.
Time for straight talk!
1. Pension plans don’t work. The premise is workers are not smart or disciplined enough to save money for retirement. Let the company or government do it for you. “Trust me, in 40 years your money will be waiting for you” is an unkept promise for most everyone in both the public and private sector.
| Governments and public companies have proven they too are not smart or disciplined enough to handle your money. Pension promises are a big lie! |
The Houston politicians should have learned from the private sector. Politicians, pandering for votes will continue making promises they cannot keep and the problems will continue.
In discussing the Dallas bailout, Democrat State Senator Whitmire (who, in 1993 voted enthusiastically for the plan), says:
“It’s not going to be pleasant,” … But without some cuts, “this whole thing will come crashing down, and we’ll play right into the hands of those who would like 401(k)s or defined contribution plans.”
God forbid government employees would have to make such a terrible sacrifice by converting to some 401(k) type program like the private sector. In Dallas, those who can, are taking their money, and control over their money and running.
2. Those who caused the problem should make the biggest sacrifice.
| Any pension fund, public or private, that is bailed out by employees or taxpayers, should include punitive benefit reductions for former executives, responsible parties and elected officials. |
It’s time for accountability. Pension board members were derelict in their fiduciary responsibility. Those in charge ignored the problem and kicked the can down the road for someone else to fix. Those who broke it should bear a cost of fixing it! If police and firefighters have to take 20% benefit cuts, then those responsible should take 40% hits. Penalize those who screwed up more than those who honored their part of the bargain.
3. No taxpayer bailout.
In Dallas they are looking to the state legislature for bail out money.
The Central States Pension Fund, representing a quarter of a million active and retired truckers has been turned over to the Pension Benefit Guaranty Corporation. The Washington Post outlines proposed pension cuts with the implication taxpayers should bail out the plan.
| No company or union in either the public or private sector should be allowed to make any type of political contributions until their pensions are fully funded. |
If a corporation or a union has money to bribe the political class, why should the rest of us bail them out?
70% of baby boomers anticipate having to work well beyond their normal retirement age in order to fund their own retirement plan. Leave it to the political class to feel they should also have to bail out other pension plans so the privileged don’t have to work.
Enough is enough! They broke it; they should fix it!
And Finally…
“A government big enough to give you everything you want, is strong enough to take everything you have.” – Thomas Jefferson
For more information, check out my website.
Download my FREE special report, “An Honest Person’s Guide to Social Security.”
You can also download my FREE report: 10 Easy Steps To The Ultimate Worry-Free Retirement Plan – by clicking HERE.
Until next time…
Dennis
Miller, On The Money
Most of folks with pensions screwed if they thought that and ss was gonna be their retirement.Folks will not(peacefully)lose their homes,what little money they take home ect. to support this pension lie insanity.Just like the rest of us,you were lied to by the pols who knew the results of said lies would be decades before coming to light,your union reps ect. also sold you out.Go and get your pound of flesh from them but fuck you if you think the taxpayer gonna take the hit for you.
This has happened for decades,I remember when polaroid sold out their pensioners decades back,ruined a lot of retirements then.The numbers will keep growing,sucks,but not gonna bail ya’s out.
My dad worked for Bethlehem Steel – for 30 years. Got a good pension, and healthcare for life. Fortunately he retired in 1985, and died in 1997. My mother continued to get benefits until she died in 2000. I say ‘fortunately’ they died – because the pension fund went belly-up in 2001 – kaput – finished – bankrupt – fucked all the rest of the retirees.
Beginning of the end for Allentown, PA.
What will happen is that the Feds will take over and finance a restructuring of pension funds -with everyone getting less than they expect for varying reasons- by absorbing private retirement accounts into an overall system the covers everything from SS to retirement.
Exactly the opposite of what needs to happen. The feds should do nothing. It’s a local issue. The cities have two choices, raise taxes or renegotiate pay and benefits. I don’t care what Houston does. “Any pension fund, public or private, that is bailed out by employees or taxpayers, should include punitive benefit reductions for former executives, responsible parties and elected officials.” Not harsh enough. Strip them of their pension, and put them in prison. Nothing wrong with defined benefits. 401k’s are a joke. But you can’t let people help themselves.
The issue with 401k isn’t the structure of law
It’s the shitty stacked marginal packages offered to company’s
That are to the advantahe if the wall Street
Peddlers
The Police, Fire, Teachers, City, County and many other low-life, overpaid pension grifters have already fucked the taxpayers once with their pension rip offs. No More.
Fuck the whole lot of you. We hate you all. Die.
Pitchforks next.
Don’t get me started ….. I am so fucking sick of hearing about ‘first responders’ and ‘thank a teacher if you can read this’ bumper stickers.
What about the rest of us? The more you hear – the more bullshit it really is.
The teachers, cops, firemen, sewer workers, are going to keep being promised huge pensions / retirement packages. The Democrats buy the votes that way. A city just can’t go bankrupt, same for a state. And the courts won’t let the cites retroactively change the pension agreements.
Eventually the federal government will print a bunch of money and bail them out. The rest of us will take it up the ass with more government debt.
we will all get guaranteed government hyperinflation from all the printed money
Do you really think Congress will order the Bureau of Engraving and Printing to swat up a bunch of $100 bills to bail out pensions?
I thought not.
You posit that Congress will simply BORROW MORE in order to credit the banking accounts to fund those pensions, which based on past history is EXACTLY what we should expect………………………
…………..except………….
This time will be different. The pension crisis will coincide with rising interest rates and rising worry about the viability of the debt market as a whole.
The game will change this time.
What most of you posters here fail to realize is this……..
Most pension plans are modeled around a continuous return rate of of no less than 6%.
Trying to find a SAFE return rate in the stock market is akin to finding a needle in the haystack! Even then, the return rate on that stock won’t last for long.
The real problem here folks is the Federal Reserve ARTIFICIALLY holding down the return rates in the marketplace!
If interest rates were allowed to find their true value, we wouldn’t be having this discussion about pension plans, because they would be solvent.
partially correct,but they are still being paid too much,especially the cops & firefighters–
there are also far too many public employees,period–
The Fed simply follows the market. Bonds were in a bull market from summer of 1981 to summer of 2016, thirty-five years.
Now that by all appearances that bull run is over, rates are now in an uptrend. Sooner or later, that will lead to a crisis.
You can’t have rising rates at the same time there is a VAST ocean of existing bonds (debt.) The results are catastrophic.
I’ve always considered public sector unions a contradiction in terms. Private sector unions? I’ve no problem with. But public sector? You don’t have the right to collectively bargain and mandate the taxpayers (who aren’t even at the table) be burdened with higher taxes to fund a civil service hump’s pension. Yesterday the Oakland fire chief “retired”at age 59. She’ll draw 156K a year. She was at the helm when 30+ young people burned to death in a warehouse fire a couple of months ago. But that can be overlooked because more importantly she was the FIRST AFRICAN AMERICAN FEMALE fire chief.
She wasn’t qualified but what the hey. Ya gotta look at the bigger picture (sarc).
About 15-20 years ago I read an article about gun control in which the author was speculating on the reasons that TPTB push gun control so hard when it is obvious that only a tiny % of the population causes the vast majority of the problems.
He examined different reasons and made a good case for the scenario that old age benefits would have to be drastically cut and that TPTB were worried that the elderly would become violent.
Though he was focusing on social security and medicare,he might have been on to something.
No, No and No.
Pensions won’t pay out. I know that (even though both my wife and I are vested in pensions I’d rather see not implode.)
All of these things are like locomotives converging on a single place where all the tracks cross. Public pensions, astronomical student debts, medical cost escalations, and the Big Kahuna, the Bond Ocean reacting to the END of the Bond Bull Market.
There will be no “printing” money for bail outs (For F’s Sake, please stop using the term “print” instead of issuing more debt. The FedGov doesn’t print money to pay its bills. It issues debt.)
It issues debt by the galaxy. It issues debt that no sane man should trust.
What we sail toward is the SINGULARITY. The time when Uncle Sam’s (previously thought to be) limitless Mastercard is DECLINED by the resurrected Bond Zombies.
Pensions are just one of the cards of this vast tower slated for demolition.
Do any of you pontificating dildos even know that there are actually government pension funds managed prudently and fully funded?? I thought not. “Ewww, it’s just a big ponzi scheme”; “Ewww, I don’t get a pension why should they”; “Ewww, there’s just no way they can make the kind of return they need to remain solvent” Blah, blah blah…
Just gettin some more doom and gloom pension bullshit to rail about. Just for shits and giggles and off the top of my head, search for the state of Florida, state of Wisconsin and the Illinois Municipal Retirement Fund (IMRF). Yes, you read that fucking correctly. One of the largest pension funds in the state of Illinois is 100% funded!! Bet you won’t ever read that on Zero Hedge will ya?
Oh, you want to know why they’re funded? Because they put fuckin money in them, and are managed properly!
Hey, guess which pension fund I’m in. It begins with an I and ends with an MRF.
Hey dickhead Gordon – here is an article describing how and why IMRF is underfunded and is going to hit the shitter sooner or later.
Hope you like catfood, asshole.
Nice work.
In round numbers, a traditional defined benefit plan at a major Fortune 50 corporation promises about TWO TIMES its net present value to pay out from approximately 2025 to life-expectancy.
An example Public Pension promises to pay out (I’m guestimating, based on some figures I’m familiar with) about FOUR or FIVE TIMES its net present value given the same age/retirement-date/death parameters.
This was always the problem with public pensions. But those of you who blame the teachers, cops, fire fighters, etc., remember that it is YOUR NEIGHBORS who voted in the ASSHOLES who set all this up. The unions didn’t strike to obtain these impossible-to-pay pensions.
It was politicians. And those politicians were elected by YOU (or your friends, family, neighbors and colleagues.)
The public pension disaster is simply another brick in the wall of 50 years of Pollyanna living beyond her means via putting it all on the Mastercard.
It is ALL THE SAME PROBLEM.
Until we all understand that, and confront the consequences squarely, all that will happen is bickering, back-stabbing and obfuscation.
Love the down vote. The internet equivalent of sticking your fingers in your ears and humming loudly.
Hi,
Better be careful. There may come a day when the politicians rob the funded pensions to pay for those who are underfunded.
Better to lay low….
Regards,
Dennis Miller
Eventually governments do indeed print money. They do it because their credit is so bad no one will loan them money regardless of the rates. Always have and always will.
Yes, they do eventually print. At least in the past, they did.
We sail uncharted seas, my friend. The US (and world) economy cannot run on physical money. Not even close.
And NEVER IN HISTORY has a government been able to resort to the literal printing press when there existed a VAST overhang of debt such as there is now.
Before we get to Zimbabwe Monetary Theory, we have to see most of the forest of bonds and IOU’s (pensions, SS, Medicare promises, 401(k) sugarplums dancing in people’s heads, etc.) ALL BURN TO THE GROUND.
It will be a firestorm for the AGES.
Uncharted waters here. Penny-ante forecasts are worth what we pay for them.
“One of the largest pension funds in the state of Illinois is 100% funded!!”
One. Out of how many ? What a success.
Spoken like a true pension grifter, regardless of union affiliation.
We hate you all – All of you pension parasites. . .
Your days of strength are OVER.
Sad.
OT: GLD (Gold’s main ETF) topped two weeks ago at about $120.20. I sold out at $119.75 in expectation of a larger pullback.
It dropped in 11 trading days to $114.025 yesterday, nearing a 50% retracement of the rally from mid-December. I was watching it, waiting for an upturn at shorter time-frames to indicate that the rally might be resuming. Yesterday at 2:00 ET (Fed meeting announcement) the market for GLD spiked down to $114.28 and vaulted higher to $115.46, wiping out SEVEN DAYS of decline in SECONDS. It undoubtedly vaulted a huge number of buy stops, too.
The market just kept going up, so I briefly bought at $115.95 but I then did a little more due diligence and realized that the DAILY 26 period Exponential Moving Average was sitting at $116.21 and this is often a place where price is turned back, at least temporarily. I bailed out at a $3 loss.
Overnight the rally continued. An hour before day session opens, GLD is printing at $117.26, adding an astonishing dollar to its closing price of yesterday, and yielding a span of THREE DOLLARS from 10AM ET yesterday to this morning’s open (assuming it opens at the same level.) That wipes out Nine of the Eleven days of decline, all in less than a single trading day.
1. Even the best laid plans all go to shat once you get punched in the face.
2. This could be the kick-off to a 3rd wave up in gold.
3. I hate the Fed. It doesn’t control the market, but it kicks sand in people’s eyes so trading becomes erratic and emotionally spastic around its announcements.