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22 Statistics About America’s Coming Pension Crisis That Will Make You Lose Sleep At Night
August 2nd, 2010 | 
Author:
As the first of the 80 million Baby Boomers have begun to retire, it has become increasingly apparent that the United States is facing a pension crisis of unprecedented magnitude. State and local government pension plans are woefully underfunded, dozens of large corporate pension plans either have collapsed or are on the verge of collapsing, Social Security is a complete and total financial disaster and about half of all Americans essentially have nothing saved up for retirement. So yes, to say that we are facing a retirement crisis would be a tremendous understatement. There is simply no way that we can keep all of the financial promises that we have made to the Baby Boomer generation. Unfortunately, the crumbling U.S. economy simply cannot support the comfortable retirement of tens of millions of elderly Americans any longer. The truth is that we are all going to have to start fundamentally changing the way that we think about our golden years.
Once upon a time, you could count on getting a big, fat pension if you put 30 years into a job. But now pension plans everywhere are failing. State and local governments are cutting back and are raising retirement ages. A majority of Americans have even lost faith in the Social Security system, which was supposed to be the most secure of them all.
The reality is that we are moving into a time when there is not going to be such a thing as “financial security” as we have known it in the past. Things have fundamentally changed, and we are all going to have to struggle to stay above water in the economic nightmare that is coming.
Part of the reason we have such a gigantic economic mess on the way is because we have promised vastly more than we can deliver to future retirees. When you closely examine the numbers, it quickly becomes clear that a financial tsunami is about to hit us that is going to be so devastating that it will change everything that we know about retirement.
The following are 22 statistics about America’s coming pension crisis that will make you lose sleep at night….
Private Pension Plans And Retirement Funds
1 - One recent study found that America’s 100 largest corporate pension plans were underfunded by $217 billion at the end of 2008.
2 – Approximately half of all workers in the United States have less than $2000 saved up for retirement.
3 – According to one recent survey, 36 percent of Americans say that they don’t contribute anything at all to retirement savings.
4 – The Pension Benefit Guaranty Corporation says that the number of pensions at risk inside failing companies more than tripled during the recession.
5 – According to another recent survey, 24% of U.S. workers admit that they have postponed their planned retirement age at least once during the past year.
State And Local Government Pensions
6- Pension consultant Girard Miller recently told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities. When you break that down, it comes to $22,000 for every single working adult in California.
7 – According to a recent report from Stanford University, California’s three biggest pension funds are as much as $500 billion short of meeting future retiree benefit obligations.
8 – In New Jersey, the governor has proposed not making the state’s entire $3 billion contribution to its pension funds because of the state’s $11 billion budget deficit.
9 – It has been reported that the $33.7 billion Illinois Teachers Retirement System is 61% underfunded and is on the verge of total collapse.
10 – The state of Illinois recently raised its retirement age to 67 and capped the salary on which public pensions are figured.
11 – The state of Virginia is requiring employees to pay into the state pension fund for the first time ever.
12 – In New York City, annual pension contributions have increased sixfold in the past decade alone and are now so large that they would be able to finance entire new police and fire departments.
13- Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars.
Social Security
14 – According to one recently conducted poll, 6 out of every 10 non-retirees in the United States believe that the Social Security system will not be able to pay them benefits when they stop working.
15 – A very large percentage of the federal budget is made up of entitlement programs such as Social Security and Medicare that cannot be reduced without a change in the law. Approximately 57 percent of Barack Obama’s 3.8 trillion dollar budget for 2011 consists of direct payments to individual Americans or is money that is spent on their behalf.
16 – 35% of Americans over the age of 65 rely almost entirely on Social Security payments alone.
17 – According to the Congressional Budget Office, the Social Security system will pay out more in benefits than it receives in payroll taxes in 2010. That was not supposed to happen until at least 2016. The Social Security deficits are projected to get increasingly worse in the years ahead.
18 – 56 percent of current retirees believe that the U.S. government will eventually cut their Social Security benefits.
19 - In 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers. In 2010, each retiree’s Social Security benefit is paid for by approximately 3.3 U.S. workers. By 2025, it is projected that there will be approximately two U.S. workers for each retiree.
20 – The shortfall in entitlement programs in the years ahead is mind blowing. The present value of projected scheduled benefits surpasses earmarked revenues for entitlement programs such as Social Security and Medicare by about 46 trillion dollars over the next 75 years.
21 – According to a recent U.S. government report, soaring interest costs on the U.S. national debt plus rapidly escalating spending on entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every single dollar of federal revenue by the year 2019. That is before a single dollar is spent on anything else.
22 – Right now, interest on the U.S. national debt and spending on entitlement programs like Social Security and Medicare is somewhere in the neighborhood of 15 percent of GDP. By 2080, those combined expenditures are projected to eat up approximately 50 percent of GDP.
Posted in Debt, Economic Crisis, Economy, Money, Pension Crisis, Pension Underfunding, pensions | 
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Now The Cops May Be Getting Scammed!
By Karl Denninger
How much longer folks before we start throwing all the crooks in jail?
In the e-mail dated June 18, K. Wayne McLeod, who served as CEO of the Federal Employee Benefits Group, Inc., told clients he was terminating the “FEBG Fund,” a fund that had been marketed to retired federal law enforcement officers. McLeod said interest payments for the month of June had “been suspended” and “nothing further [would] be sent.” In the e-mail, he informed clients that he was praying that they would forgive him at some point in the future.
Forgive him at some point in the future?
That sounds like something someone would say at a sentencing hearing.
Eh, hope you didn’t have any money over there.
The key is “didn’t have” – not, if this report is correct, ”still have.”
Posted in Corruption, Economic Crisis, Economy, Fraud, Pension Crisis, Pension Underfunding, pensions |
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To Illinois Residents: Move. Now.
By Karl Denninger
But when shown a seven-page list of derivatives positions held by the Illinois Teachers Retirement System as of March 31, obtained by Medill News Service through a Freedom of Information Act request, the University of Illinois-Chicago assistant professor of finance expressed disbelief.
Yes, derivatives. In teacher pension funds. How bad is it?
After losing $4.4 billion on investments in fiscal year 2009, and 5 percent on investments in fiscal 2008, the teachers’ pension is now underfunded by $44.5 billion, or 60.9 percent, according to the Commission on Government Forecasting and Accountability’s March 2010 report.
They have 40 cents of every dollar they need.
So what does someone who has no accountability – that is, who won’t be jailed if they make it worse rather than better, do?
Why they go to Vegas and bet it all on Red with a crooked croupier in a crooked casino!
Seriously.
The teachers’ fund denies it’s currently losing money on its derivatives, and in a statement said its investment strategy, which has included OTC derivatives for the past 27 years, is up 9.7 percent during that same time period. That’s better than the fund’s 8.5 percent target return rate
Lehman was doing really well too. Right up until they blew up.
A target 8.5% return rate eh? That’s suspiciously close to the 8.3% debt growth numbers from 2000 onward in the general economy!
That won’t work when the average economic growth rate over the same period is about 5.2%. Indeed, it is that idiocy that led to the collapse.
We doubled systemic debt from 2000 to 2010, roughly. That’s clearly what they’re trying to do with their “target”, but it will fail unless we can double outstanding credit again in the next ten years, and we can’t cover the debt payments at their present level.
But right now, TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default, that were blamed in part for the 2008 collapse of Lehman Bros. and bailout of insurance giant American International Group Inc., or AIG.
Writing uncovered derivatives? Oh yeah, that’s real smart. They’re effectively short volatility, which is a grand thing to be while the financial stability of nations is in question.
Tell me again how they get to do this? What their capital base is for it?
Oh yeah, it’s you, the Illinois taxpayer, who will be required to make up the shortfalls when (not if) this blows up in their face.
Get the hell out of Ill-noise folks. Right now.
Oh, if you’re an Illinois teacher?
Your pension is toast.
Mark my words.
Posted in Corruption, Debt, Economic Crisis, Economy, Fraud, Government, Illinois, Money, Pension Crisis, pensions |
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And Here It Comes: State Pension Systems
And Here It Comes: State Pension Systems
Posted by Karl Denninger
For those who think that the state mess isn’t going to have a big impact, you need to read this bill. This, incidentally, is from a state (Florida) that is allegedly one of the best in terms of its public-pension status – those of you in Illinois, New York, California and others are in much worse shape.
Let me recap what this bill does:
- Increases employee contributions for all future hires and many current employees by 1% to the pension plan.
- Actuarial disclosure (and public posting of same) must be regularly performed and corrective steps identified to halt and reverse any unfunded liabilities.
- Pensions are now computed based on the average compensation during the employee’s term of employment, not the last five years, and explicitly exclude any and all overtime or other “cramming” attempts. Further, the pension paid is capped at that average compensation. All “hazard pay” riders (e.g. additive amounts for police, fire and similar employees) are ended. Lump sum payments, annual leave payments (for vacation not taken) and similar are excluded. In short, only your base salary counts, and the average across your entire term of service is used, ending the abuse of playing games in the last couple of years to “goose” pension returns.
- Retirement ages go up materially. The minimum retirement age is now typically 60, and with the exception of “special risk classes” (e.g. cops) you now need 33 years of creditable service. Pension payouts now cannot start before age 62 if retiring before July 1st 2011 and 65 thereafter. For “special risk” classes the prior 55 year age lifts to 60 as of July 1st, 2011.
- Municipalities can close their defined benefit plan, choosing instead to offer defined contribution plans (e.g. 401k equivalents.) An existing employee can transfer out of the pension system to that 401k-style system, but if they do they cannot transfer back to the pension system.
- Finally, there is no grandfathering – this applies to all current and future employees, without exception.
The language also appears to bar double-dipping and other forms of abuse, but I have not yet fully analyzed the impact of these provisions – and whether they can be gamed.
Nonetheless this is a dramatic change and the lack of grandfathering means that there will be much screaming from various “special interests”, especially public employee unions. This bill is being kept VERY quiet around here – I’ve heard basically nothing in the media.
Frankly, I still think this plan is too generous on-balance – but the fact of the matter is that corrections like this have to happen. The abuses of public employees in this regard are well-known and endemic, and must be ended. So too much the common lies told about these funds – this bill forces public and accurate disclosure of the status of all of these plans, including their unfunded liabilities and the process to correct that deficiency.
You can bet this will be bitterly-fought by the public employee folks. Too bad. To those who are government employees and believe they should be able to abuse the pension system and stick the people with the bill, my view is that you should all be fired – and lose your pension benefits entirely.
I’m frankly tired of the view, held by many of these people, that the private sector should foot the entire bill for the profligacy and outrageous acts of government over the previous 30 years.
Government is directly responsible for the political policies that have led to this economic mess through the lack of law enforcement, the failure of government to regulate and control financial entities, county and state governments that have embraced “grow to the sky” fiscal policies that are mathematically impossible and public employees who believe they are God’s Gift to the public and that we must provided whatever the demand.
It is time for these “government tit-suckers” to be held to account, and to bear the costs that have come from their actions. This bill is a good start, but it goes nowhere near far enough to actually address the issues.
Posted in Economic Crisis, Economy, Pension Crisis, Pension Underfunding, pensions, State Budgets |
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Plunder! How Public Employee Unions Are Bankrupting the Nation
Plunder! How Public Employee Unions Are Bankrupting the Nation
Jack Dean at Pension Tsunami just emailed subscribers a note to watch Steven Geenhut, author of Plunder!: How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation on C-SPAN2 tonight at 10:00PM EST.
About The Program
Steven Greenhut takes a critical look at government workers and the unions that represent them. Mr. Greenhut argues that government employees, who receive salaries, benefits, and a level of job security that far outpace workers in the private sector, have become a huge drain on state and federal coffers.
About the Authors
Steven Greenhut, a former member of the Orange County Register’s editorial board, is the director of the Pacific Research Institute’s Investigative Journalism Center and News Bureau in Sacramento. He is the author of “Abuse of Power: How the Government Misuses Eminent Domain.”
If you don’t have access to BookTV (C-SPAN2) via your cable provider, you can watch it on your computer (Windows Media Player required) at CSpan2Live.
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Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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