Pension liabilities:
Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy.
The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year.
The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.
With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.
That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years — more than half of them since 1997 — public records show.
John Bolton got a lot of grief last week for suggesting it would take the bombing of an American city to get people’s attention about the serious terrorist threats out there, but maybe his example is useful for the economy. The way I see it, with the market down to 90’s levels, unemployment exploding, the collapse of the financial sector, the trillions in lost value in the market and home prices, and the various other horrible economic news, if our economy was a country, we would already have had the equivalent of New York City, Los Angeles, Chicago, Houston, Philly, Phoenix, Dallas, and San Diego reduced to rubble. This pension liability is just a mop-up operation, threatening the next tier of cities with annihilation, equivalent to losing Charlotte, Columbus, Austin, and Jacksonville.
We are so screwed.
*** Update ***
I should probably add there is an obvious fix to this. Clearly more of us need to stand athwart history and cut open a Lipton tea bag while shouting porkulus. Obviously, that is our road to salvation.
Ned R.
It’s definitely something to watch. CALPers is mentioned as a big trouble spot, but that’s why I’m glad I work for the UC and not California directly…
Nicole
My accountant mentioned to me that a big difference between this Depression and the Great Depression is that in the Great Depression people had no money, but they also had little debt. We’ve been faking our "prosperity" on credit cards for 30 years. I wonder if the gov’t will be willing to take on debtors when things get really bad and demand some debts be forgiven. Especially in light of the gov’t likely not meeting pension promises.
This is so bad. I think we may come out a better nation on the other side, with a better support system for all of us, but it’s going to suck for a long time. Maybe things will be better by the time people’s young kids have kids.
valdivia
I am OT again but Brown is really destroying the Republican ideological talking points in the floor of Congress. He just advocated the end of off shore tax shelters and the reps just sat there staring while others clapped and then finally had to get up. This is delicious especially because all the networks were billing it as a pro free market speech. He is pushing for world wide new regulations. Love it.
Comrade Dread
Yes.
Because it’s always been easier for our ‘leaders’ to kick these cans further down the road for future ‘leaders’ to deal with.
Well, guess what? The future is here and we are screwed.
hana
My dad already got screwed on his pension (United air Lines). If Mom loses her public pension– well, thank god we’re unable to have kids, ’cause they’re gonna be moving in with us and we’ll be supporting them.
Zoogz
Which certainly implies that even in the best of economic times, we managed to lose Buffalo, Cleveland, and Detroit even before this happened. What a mess.
MattF
Yeah, financial wizards were happy to collect fees for managing "other people’s money" by putting large fractions of the money into equities. People would tell me I was an idiot for keeping the percent of equities in my 401(k) at around 30%– but not so much any more.
Alan
Another example of how investment bankers performed their magic. They’ve corrupted every aspect of our financial system–underfunded pensions, underfunded insurance. And Jim Cramer says Obama is destroying wealth.
The Limbaugh Party will tell you we didn’t deregulate enough. That if individuals are free to act and function economically on their own behalf–freeing that entrepreneurial spirit–they can do great things. So "Where Are the Customers’ Yachts?"
Punchy
Pensions are for old people, who should do this country and its young people all a favor by dying. Then we can use their unused pension money for hookers and blow.
amorphous
I feel strangely honored that Austin received high enough consideration among American cities to hypothetically reduced to figurative rubble. Take that, Atlanta.
libarbarian
Can we finally Tea-Bag Wall Street?
They need to taste Real American Nuts.
edmund dantes
The pension plans were severely underfunded, allowed to be used to offset other costs, used as accounting gimmicks, and a bunch of other shenanigans like takeovers guys leveraged the pensions to allow them to take over the company.
Companies always new they could just declare bankruptcy and get the crap off their books and on to the government dole so a lot of defined pension plans in the private sector are a whole lotta nothing.
The interesting one is going to be the public ones (which are really only free of the leveraged asset takeover problem).
Montysano (All Hail Marx & Lennon)
@valdivia:
Cue Confederate Yankee in 3…2..1: "New World [email protected] I know’d it wuz gonna happen. Teabaggerz to the ramparts!"
thomas
Comrade Dread hits it on the head.
We’ll all be working until we’re dead.
Public pensions, what’s left of private pensions, and our personal private pensions (401K) are going up in smoke. (Last year I lost the Ferrari I was never going to buy.) In Illinois the state ignored it’s pension liabilities even before the s— hit the fan. I’m sure other states have acted just as foolishly.
Dork
I agree that the solution to this problem clearly is more tea-bagging. I’m going to schlepp over to the sorority house down the street and see if they’re interested.
Jason
What I don’t understand, and have not seen anyone else make this point, is how the wealthy, who are freaking out over a 5% increase in a marginal tax rate are ok with a >40% drop in the DOW. I am guessing that their portfolios have taken a significant hit in the past year. And they are worried about a little income tax hike!?!
Patrick
Pension liabilities are always going to look bad during bear markets. While I would love to see all public pensions honestly funded, overreacting to things now is as stupid as not funding plans during bull markets (because now the plans have surpluses). Which is what happened in many States and corporations over the past 15 years.
If the economy keeps falling apart, the stock market will keep tanking. But if that goes on for years, we will have problems much worse than pension liabilities for people retiring in 2020. Most likely the equities left in these plans will overperform the actuarial numbers from today until 2020. It would be nice to really capture that with large contributions to the plans now, but the States have no money.
Michael
I keep wondering when some 60 year old is going to kneecap Dennis Hopper for the "so, you’re a little confused" pitch for Ameriquest.
And we’re not far from seeing violence at broker’s offices. I keep seeing the Edward Jones commercial with the cute old building. A guy here in the office was brainstorming with me about a not-funny parody that simply shows the building and window splatters while gunshots go off.
Napoleon
@valdivia:
Really? How? Yesterday I heard the speech would call for a "Global New Deal" which pretty much tells you what it is about (note, personally I think the New Deal was the best thing to happen to the free markets in this country, but are media are too stupid to realize that).
Svensker
The pension problem is going to be a really interesting one. In NJ, where public employees get high salaries — cops in my very safe tiny town make $80,000 after 6 years — retire after 20 years with 80% of that salary, and get high perpetual health care benefits (for themselves AND their families) — the laws are written such that pensions MUST be funded ahead of anything else. May I say that property taxes here are already sky high (we pay almost $9K a year on our modest house). State tax revenues are falling due to the recession, at the same state investments to cover the pension have tanked as well. What are they going to do? There’s no well to go to, it done run dry.
It’s gonna get very tense if we start pitting the government employee unions against the taxpayers.
Tsulagi
Yeah, and the problem is the fucker has way more than just a four-hour erection.
Martin
UCRP is pretty fucked as well, by the way.
Bulworth
"And Jim Cramer says Obama is destroying wealth."
I was under the impression that our Wall Street and CNBC geniuses had already seen to that.
valdivia
@Napoleon:
because Brown was talking about not ending free trade the idiots in the media billed for the hour before (I was watching MSNBC) as a free market speech. And Shuster who came on just as it finished focused on that and said nothing about his defense of the stimulus, govt intervention for climate change and helping the poor. You see free trade is all that matters. I tend to like Shuster but can we get better media please?
El Cid
We cannot afford to keep letting Franklin Roosevelt steal from our children in order to give make work jobs to layabouts and to build undesired roads and electricity where the market has shown that it isn’t desired.
Someday our children will ask us why we have forgotten the lessons of Calvin Coolidge.
Sure, the liberals just want to blame Herbert Hoover for where we are, but the reality is that any downturn was temporary in nature until FDR began spending us into the ground.
srv
The baby boomers will get whatever they want, they’ll control the next 10 or so election cycles.
Y’all will be working two jobs to make them happy.
Dork
Holy fuck. I understand the danger, the emotional duress, etc., etc., but daaaaaaaaaaamn, that’s a lot of money for a simple beat cop.
Of course, in Jersey, a 1 bedroom hovel runs (or used to) about $300K, so I guess it’s all relative.
Josh Hueco
This is depressing. Can we have a cute ‘n’ fuzzy pet open thread please?
Alan
@Patrick:
Yes, under the belief that our financial wizards have figured out how to keep the economy from ever suffering from a recession. All they had to do was pump more money into the system–credit and leverage, baby. We can create new bubbles to absorb the ones that already burst. And everyone on Wall Street can be rich.
valdivia
amazing really the summary by all the media outlets of the Brown speech is that he advocated for free trade and no protectionism. WTF? That was maybe 3 lines in an hour-long speech that pretty much destroyed the republicans talking points on spending, taxes etc. Can someone explain to me what the hell these journalists are reporting?
Stooleo
Win.
Sister Machine Gun of Mild Harmony
I don’t think state pension funds will go under. When it gets close to that point, I think the states will tell their older employees that they will have to wait a lot longer to collect. It will make them angry, but that is a lot smaller contingent to anger than current + former employees + everyone else if the state has to declare bankruptcy.
The retirement age is too low anyway.
John PM
@thomas: #14
Yeah, this has been identified as a problem in Illinois for years, but Blago and the General Assembly did nothing, which is part of the reason why there is not a $7 billion shortfall in the budget.
jnfr
My husband works for GE and has one of the last private pension plans in existence. I’m waiting for it to vanish. Heavens knows we’ve already lost a lot of our 401k money. Fortunately he’s young and won’t need to retire any time soon.
Ned R.
@Martin:
Wouldn’t be surprised at all.
Nicole
Awesome Unitarian Jihad name.
I think the retirement age thing is open to debate. Yeah, for desk jobs and stuff, absolutely people can and should work longer (I say "should" aware that there is a lot of age discrimination which shouldn’t be there). We have retirees volunteering at my job who are in their 80s and clearly still sharp as tacks. But there are some very physical jobs that I think just can’t be done after a certain point- the body is going to age, no matter what you do, and you’re going to lose reflex times and muscle strength and you’re going to have repetitive-motion injuries. It’s unavoidable. So what do we do about heavy labor jobs that really can’t be done by older people?
I mean, I’m as much a feminist as the next person who cares about equality, but I understand why there aren’t a lot of female firefighters- it requires a level of physical strength most of us don’t have. And I understand not every job is the same and some just can’t be done by 65-year-olds. So what do we do about their retirements?
Dennis-SGMM
One of the main gimmicks used by state pension funds to paper over their actual state was the ability to "predict" the return on their investments. Most of them have been predicting an 8% or even 8.75% return for years even though the average return has down around 3.5%. No one in state government called them on it because the state would by law be on the hook to make up the difference.
Martin
Well, that’s sorta already been happening. The states have been aware of the pension problem and have been steadily cutting benefits for new hires to help pay off the benefits they’ve already committed to and they’re finding creative ways to trim those benefits they’ve already agreed to.
I’m half convinced the reason I often have no heat or airflow in my office is that I’m a relatively longstanding employee at this point and it’d make good financial sense for the institution to have me die of pneumonia. I’m surprised they don’t offer me free all-I-can-eat bacon and saccharine sweetened drinks, just to move the odds of heart attack and cancer up a bit.
amorphous
I am looking into the cost of purchasing my herd of reindeer again as I type this. I will have to buy them unless we do the one thing that could possibly save us in this situation: tax cuts.
Kirk Spencer
OK, I see this one Waaaay too often, and it makes me suspicious of the "80,000 in six years" line. This LINK is to the New Jersey PERS documentation for law enforcement.
1) the benefit is 2% of the average of your three highest consecutive salaries times the number of years of service for up to 25 years service. For 26 and more years, the additional years get 1% per year. A law enforcement officer must serve a minimum of 10 years to receive benefits at age 65, and can receive them at age 55 if there are at least 20 years of service..
I keep seeing this ‘80% for less than ten years’ crap for public services (teachers, police, prison, etc), and it is not so. It is, in almost every state, x% of slightly less than top salary times the number of years. It is, in almost every state, necessary to work at least 20 years to retire at 55, and you can work for fewer years (but in every case I know there’s a minimum) only if you work till you’re 65.
Whether ignorance or willful misrepresentatoin, this sort of thing needs to stop.
Martin
I’ll have 30 years in when I turn 55 in UC and I’m almost positive I don’t walk away with 80%.
Just Some Fuckhead
@amorphous: The German reindeer industry magazine Der Rudolfs has very good information on reindeer.
Bulworth
Somebody mention a British Prime Minister speaking to Congress? And that he talked for an hour? Must not have happened. Cuz CNN only had a very little blurb about it. That’s it. Nothing to see here. Please disperse. More better media, please.
TaosJohn
My wife "retired" at 55 from college teaching when we moved from MD to northern New Mexico 10 years ago and lost 80% of our income. I was going to support us via modem, had the Web columnist thing down cold, looking at a nice return, when the dot-com bubble burst and all the Web writers got email pink slips. Oops.
Now she’s drawing on that TIAA pension (giant national college teachers’ retirement fund) to the rousing tune of about $1,300/mo. Combined with Social Security started at age 62 for both of us and my Web design and writing income, we’re at least holding our noses above water — but that’s with renting (zero equity anywhere), no health insurance, and damn little else. It can be done, and we’re doing it. If the pension tanks, we’ll be gnawing on sagebrush, and I can always try clubbing a few jackrabbits for a stew.
Seriously, though: what this means is that we’ll all have to work together on survival. Years ago I had a T-shirt that read "Eat the Rich"… That may be a good place to start.
TenguPhule
Another couple of bad months and it will become a prediction of the future.
James F. Elliott
Two years ago, when we first hired him, my accountant was totally stoked that I pay in to CalPERS instead of Social Security. I wonder what he’ll say next month when we meet. Thank His Noodly Appendages that I’m just turning 30 and have plenty of time before I retire. Assuming, of course, that this is fixable…
bootlegger
@Nicole: Haven’t you seen the cute old ladies standing inside the door at Wal-Mart all day? They seem pretty solid. We can all hope to retire as Wal-Mart greeters.
Napoleon
@valdivia:
I am fine with the free trade if they do the other stuff. Remember when NAFTA was passed it was going to be softened with job retraining programs and other saftey net items, and as soon as it passed amesia set in on our political and media elites and that never happened. They have their issues and they don’t give a flying f— about the rest of us.
Sister Machine Gun of Mild Harmony
!All hail the Unitarian Jihad!
I have mixed feelings about how to deal with laborers. It is true that they just can’t do their jobs after a certain age, but does that mean we should be paying them money while they watch TV all day? I just don’t like that. With current life expectancies, these folks have a loooong time to collect that money. I want something back. Couldn’t we allow them to retire early as long as they agree to do a certain number of hours of volunteer work? I mean people of a certain age always THINK they have earned their retirement, but the truth is they are poised to collect WAY more than they put in if they retire in their early to mid-sixties.
TaosJohn
I’m always amazed that anybody is just 30 years old. Guess I need to get out more.
BonnyAnne
@ Nicole:
you’re absolutely correct about the difficulties with the retirement age; not everyone picks up on the trouble with raising it (because fewer and fewer people have jobs involving hard physical labor, I imagine).
I mainly work desk jobs and could continue to do them until I’m 80, god willing. (and it looks like I will need to, at this rate.) My husband, however, has worked in foundries off and on for the last 10 years, and is trying frantically to get away from that industry because so few make it past 50. By then your knees, back and lungs are shot.
I think the main problem with raising the retirement age (which I used to be 100% in favor of, btw) is that too many people picture themselves doing gentle, sophisticated jobs in their 70s… writing articles for academic journals, tax advising, maybe working as an art docent at the local museum. No one imagines they’ll be a CNA or house cleaner or apple picker at age 74.
~BonnyAnne
HyperIon
@Kirk Spencer:
Thanks for doing the work, Kirk.
I thought that sounded bogus when I read it.
Wini
Dennis Hopper is in ads for AmeriPRISE. Common mistake :-)
HyperIon
The PBGC has been taking a beating lately….in the market and from corps who are supposed to be paying premiums. So when big businesses start (?) to fail and try to walk away from their pension obligations, PBGC will NOT have the funds to mitigate the extreme pain that will be felt by former employees/retirees.
At this point I am very glad to have been responsible for my own retirement funds. Yes, it’s hard work and scary but at least I get to choose.
FSM, please don’t let TIAA-CREF turn out to be just like all the others. (Will the non-profit aspect save me? Look at all the credit unions that are NOT in trouble! Maybe the non-profit angle needs more scrutiny.)
Svensker
@Kirk Spencer:
Um, Kirk, I said retire after 20 years. I’m not trying to mislead anyone here.
HyperIon
@Svensker:
But you wrote:
Kirk Spencer’s post indicates that such a cop would get 40% of the top 3 years salary. If true, wouldn’t that make what you wrote misleading?
jenniebee
Richmond remains untouched! Woohoo! USA! USA! USA!
jenniebee
@Svensker:
What you mean "start," White Man?
The link, btw, is a veritable pinata full of methodology errors filled with wingnutty nougat centers. Enjoy!
Leelee for Obama
Truthfully, I have never been in a position to save anything for retirement, bad marriage, no college, etc. For the first time in my 58 years (just the other day), I’m grateful. At least I always knew I’d work till I died, so it’s no shock to the system for me. I feel for the people who thought they had something waiting at the Golden Years Exit Ramp!
What I think we’ll see much more of is multi-generational living arrangements, like people back in the old days did. Pay cash, eschew debt and ignore the madding crowd!!!!!
Zuzu's Petals
@HyperIon:
I don’t know about an 80% deal, but public safety employees generally get a higher rate/lower retirement age than non-public safety employees.
Zuzu's Petals
@Ned R.:
One advantage of being a CalPERS retiree (like me) over a UCRP retiree: my health benefits are guaranteed. It seems plenty of local agency employees have the same no-guarantee problem. Oy.
It’ll be interesting to see what the state does if CalPERS comes up short. There’s a question as to whether it could issue pension obligation bonds without putting ’em on the ballot.
Steeplejack
@Just Some Fuckhead:
Der Rudolfs?! That magazine sucks! Everyone knows Blitzen! is the journal of record in the reindeer industry.
R. Schmidt-Orren
That is pure gold, John.