“This is going to be a national crisis…”
“This” being America’s woefully underfunded pension liabilities, according to Karen Friedman. She’s the executive vice president of the Pension Rights Center.
(A place called the Pension Rights Center does in fact exist. We checked.)
MarketWatch columnist Jeff Reeves howls in confirmation that “collapsing pensions will fuel America’s next financial crisis.”
“This is not a distant concern,” warns he, “but a system already in crisis.”
According to data supplied by the Federal Reserve, pensions — public and private combined — were roughly 27% underfunded at the end of last year.
By some estimates, America’s public pensions alone are sunk in a $6 trillion abyss.
The average public pension plan returned just 1.5% last year.
Last year marked the second consecutive year that plans undershot the 7.5% return rate, according to Governing magazine.
The same plans worked an average gain of 2–4% in 2015.
A highly technical term describes the foregoing if it goes on long enough… and we apologize if it sends you to the dictionary:
Briefly turn your attention to the Golden State, for example. California.
State pensions are only in funds to meet 65% of their promised benefits.
And California pins its hopes on that golden annual 7.5% return to make the shortage good.
But it’s in a devil of a fine fix if the average public pension plan only returns 1.5%.
The math is the math.
California essentially depends on returns 400% above the norm, according to financial analyst Larry Edelson.
But California is by no means alone.
We won’t run the entire roll call of shame.
But the great state of Illinois, for one, risks sinking into a $130 billion “death spiral” from its unfunded pension liabilities, as Ted Dabrowski of the Illinois Policy Institute described it.
S&P Global Ratings has even threatened to downgrade the state’s credit score to “junk” status.
New Jersey, Connecticut, Massachusetts and Kentucky are also among the worst deadbeats.
But the problems run from ocean to ocean and south to north.
A report from Moody’s reads thus:
For many states and municipalities, exposure to unfunded pension liabilities is already at or near all-time highs. Since cost burdens are already expected to further increase, pension fund investment performance is critical for the credit quality of many governments.
Not even a “best case” cumulative 25% investment return on public pension plans would stanch the blood flow, according to Moody’s.
As our resident income specialist Zach Scheidt argues:
Your tax bill could explode as governments around the country seek to bail out insolvent pension plans. And you know how much politicians like to use your tax money to bail out some constituent. They like to prove their “compassion” with your money!
“Expect to pay higher state and local taxes for fewer services in the years to come,” adds Larry Edelson, before mentioned.
“Don’t be surprised if authorities of all shapes and sizes — from local governments to national agencies — up the ante to get ahold of your assets any way they can.”
We would have to agree. You shouldn’t be surprised in the least.
Can you imagine comparing the venerable, eminently worthy banana republic… to Illinois?
The pension crisis is truly “America’s silent crisis” and indeed the world’s silent crisis.
Full article: Pensions Timebomb In America – “National Crisis” Cometh (GoldCore)