How the Ballooning “Pension Crisis” Will Impact the Economy

It’s not just the Dallas Police & Fire Pension Fund

By James Murray:

In the very simplest terms, the Dallas Police & Fire Pension Fund is going broke, and the police who are counting on it for their retirement are beginning to panic. Police involved are retiring as early as possible and taking cash payouts because they fear that the fund will run dry and future checks may not be forthcoming. The whole thing is beginning to look like a run on a bank and it is just making matters worse.

It’s not that the DPFP is all that different from most of the public and private retirement funds; it’s just that what is happening has been noticed and made the headlines.

When you consider the number of people involved and the amount of money involved, the Dallas Police Retirement Fund is pretty insignificant considering that retirement funds in places like Chicago and the State of Illinois are probably in as bad a shape. Then there is the big daddy of all retirement funds, the Social Security Trust Fund.

Exactly why these funds are in trouble varies but the general view is that not enough contributions were collected, expected investment gains failed to materialize, and benefits were overpromised. Many of these funds also have a retiree health care component, and health care costs have risen dramatically. The bottom line is that these funds are having to pay out more than expected and they are not going to be able to deliver what they have promised without major changes of some kind.

The social implications are interesting to contemplate.

Suppose that you are a police officer in the State of Texas and you are looking for a job. Would you even consider the Dallas Police knowing of their retirement problems? Would you demand substantially more now to work for the Dallas police to offset the risk of making retirement contributions with a chance of never getting a retirement check?

If you were working for the Dallas Police and had enough time in to retire and had a choice of working longer and getting a bigger pension or retiring early, what would you do?

There are about 22 million people who work for government at some level, federal, state, or local and almost 100% of those jobs have some form of retirement plan. Some of those plans are in pretty good shape, a majority aren’t. Then there are 47 million people collecting Social Security checks as of today and that number is growing daily.

There are also a lot of retirement plans in the private sector – union plans, company plans etc.

When you add it all up, at least 20% of the people in the US depend on retirement checks of some kind and the number may be as high as 30% and there will be a lot more in the future.

Before 1935, when Social Security was created, retirement plans were few and far between. After 1935, they began to spring up everywhere. Unions began adding them to their demands, private companies used them as recruitment perks, and governments at all levels, run by politicians eager to gain votes, began adding them to their employment packages.

Before 1935, the general practice was that you worked for a company, got paid on Friday and you were even. If you worked there for a long period, when you retired, you got a party, a gold watch, maybe a small cash bonus and you were out the door. You were expected to save for your own old age.

Eventually, the idea of retirement funds worked out to: you contributed some money out of every paycheck, your employer contributed some amount. At a certain age or after a certain number of years of service, you could go home and a check would show up every month in your mailbox.

There are an awful lot of people that go to their mailbox monthly and retrieve those checks and they expect them to be there until they die. If those checks stop or shrink drastically, the effect on the economy is going to be tough.

The Social Security Trust Fund is going broke unless some drastic actions are taken. The facts are not in doubt, just the exact day that the last money flows out. Estimates run from 10-15 years.

With Social Security, there is a law that says that if the Social Security Fund should run dry, the government is obligated to pay 75% of the normal amount out of “general funds.” Exactly where the money from the general funds is going to come from is not explained.

If that should happen, the average Social Security check today is about $1200 a month. Cutting $300 on average a month on 47 million retirees is approximately $140 billion a year that instantly disappears out of the economy. Instant recession.

People with retirement funds at other government and private entities don’t always have such protection. If the funds run low, there is no guarantee of any kind in many cases. In some cases state and local taxpayers have to chip in. Taxes increase, fees rise: money gets taken out of the economy to keep these plans afloat. In other cases, the checks will decrease drastically, and this too cuts into the economy.

When you look at the number of people that depend on retirement checks and how much they depend on those checks, a collapse of the retirement systems would be catastrophic to a lot of people.

Politicians have known of these problems for years and have chosen to just kick the can down the road rather than face the politically painful choices required to fix these problems. Now the road is running out, and no matter what is done to correct the problems, retirees’ finances and spending are going to get slammed, taxpayers will be tasked to step up to the plate, and the economy will take another hit. By James Murray.

So how is Chicago addressing its pension crisis? Check the bills in your mailbox. Happening now in Chicago. Read…  This is How You’ll Bail out Municipal Pension Funds

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  82 comments for “How the Ballooning “Pension Crisis” Will Impact the Economy

  1. Harris says:

    Saving Social Security does not require anything dramatic.

    Removing the maximum wage base (currently $118,500) or raising the tax rate another 1.5% or raising the retirement age to 69.

    Or any partial solutions of the above combined.

    • Wolf Richter says:

      Raising the cap is pretty drastic for people in that income group and companies that combined suddenly have to pay a whole lot more into the system.

      But I agree … something like that is going to happen.

      • bead says:

        That’s when I expect to see the helicopters. Modern monetary theory, the cold fusion of economics! It’s only silly morality that holds us back. Get rid of cash and let the technocrats apply their theories. Congress can simply pass legislation that stipulates we must all be rich, a new mandate for the Federal Reserve.

        Who will penalize us? Every other country in the world will be doing the same thing! Our demographics are bad, but we can import enough population to overcome that. The new immigration policy will be “come one, come all”.

        As the old SNL Jimmy Carter joke went: “Inflation is our friend. I know I’d like to own a million dollar car. Wouldn’t you?”

        • Robert says:

          Bead, you have to ask yourself the question, How is it that the U.S. Government has run a deficit for some 180 years of existence yet we are still here and doing fairly well. Then ask the question, How is it that every Federal Government operation and agency can run a deficit, some have no revenue and function and service the citizen, yet Social Security and Medicare can not run on a deficit budget? The devil is in the details, or politics. Actually MMT explains economics much better then a vast majority of politically-correct academic institutions and their scholars and graduates.

      • Jay says:

        I love when people making more than $118,500 squeal about having to pay a little more to keep Social Security solvent. In such cases I love to dispense the same advice they so often like to give everyone else when they explain downsizing, offshoring, layoffs, unemployment, foreclosure and the like: “Suck It Up.”

        For Christ’s sake rich people, stop whining and just plug up the dyke so there isn’t a flood that kills everyone.

      • John M says:

        Wolf / Harris

        How will the 92 million folks that are un-reported by the employment numbers get a gig from age 62 to new raised retirement age of 69?

        Let me know how you fix that one and you’ll have a job for life in Hillary’s BLS!

        • Robert says:

          That 92 million is misleading, it includes retired and those not seeking employment, the article states that some 3% of that total actually would want to seek employment. The W.S.J. knows how to sensationalize as they give the gross number in millions, yet the actual labor participation rate has declined some 2% in 30 years, and is not at the lowest it has been around 1970. As far as the Social Security Fund defaulting or Medicare, will never happen, just like all other Federal programs and agency’s they can operate on a Congressional passed budget, whether it is a deficit or surplus will be up to the Congress.

      • JerryBear says:

        Drastic? For whom exactly? The rich? Surely you jest I think if it has to come out of somebody’s hide it should be the affluent and well to do. It could be phased in gradually, raising the cap a bit every few years to keep social security solvent but without causing drastic shocks. What do you think?

        • Wolf Richter says:

          Realistically speaking, the poor … well the lower 50% of the income scale don’t have any hide left out of which this could come. So the money needs to come from somewhere else, namely those making more money, or benefits need to be cut or delayed, or a combination.

    • Billy Bob says:

      Absolutely correct, Harris. Such easy and simple solutions, of course, are continually beyond the reach of the intellect and integrity challenged members of congress. Eventually, they will have no choice. Removing the cap on wages subject to Social Security taxation, and moving to include capital gains and investment income of all types as well, would solve the problem immediately. Can’t you already hear the howls of the “overtaxed” wealthy?

      • Tom Kauser says:

        The fed balance sheet will have 20 trillion and social security will be broke!
        Everyone will be on both knees and not in protest!

      • polecat says:

        A minor quibble: I would add … no insider-trading to be done by the maggots in CONgress & tax ALL of THEIR capital gains .. to your list of suggestions.

        • polecat says:

          Oh … and force them to apply for Obama Care as their ONLY source of healthcare and see how THEY like it!

    • WorldBLee says:

      Yes, the fear mongering about Social Security going broke have only one goal: To force people to switch to private accounts so the financial sector can make billions on fees. Social Security only needs small, easily implementable adjustments to stay solvent–most importantly, removing the cap on the maximum wage base. Raising the retirement age is a BAD idea as a) many people work physical jobs you just can’t do as you get older, and b) people are not living longer (and we’ll likely see our average lifespan in the US decline as our economy crumbles as it did in the Soviet Union after its dissolution).

      • Tom Kauser says:

        Head scratcher!

      • RepubAnon says:

        On a side note, here’s another causal factor in the Underfunded Pension Crisis – remember the Reagan Years, when venture capitalists raided “overfunded” pension funds for quick cash? Notice how all those supposedly “overfunded” pension funds became underfunded when it came time to start sending out the Baby Boomers retirement checks?:

        AUTHOR(S) Cleary Jr., William T.
        PUB. DATE June 1987
        SOURCE Management Review;Jun87, Vol. 76 Issue 6, p51
        SOURCE TYPE Academic Journal
        DOC. TYPE Article
        ABSTRACT Illustrates how overfunding a pension plan may lead to a hostile corporate takeover in the U.S. Need for corporations to monitor the operation of their pension plans; Hands-off policy of the administration of U.S. President Ronald Reagan on plan assets reversion.

    • Pete Koziar says:

      That assumes, however, that there really is a “trust fund,” and not just a set of IOUs that must be repaid out of general funds.

      My understanding is that anything in any sort of SS “trust fund” has been spent long ago, replaced by special government bonds. It’s like me taking out a loan to myself and including it on my books as an “asset” and not a liability.

      • Wolf Richter says:

        The Trust Fund contains US Treasury debt, same as a very conservative portfolio of Treasuries, only much bigger. Can’t get any more conservative.

        • wkevinw says:

          Non-marketable securities- which are a promise to pay. There is no “normal” capital account.

          The Social Security construction is PayGo/Promise only.

          I predict the 25% cut will happen.

          Adding to the tax is not “fixing” anything- it’s adding to the tax/cost, which is already 600% over the budget(!) that was originally designed. I would call that catastrophic lack of actuarial control.

          The program was originally made to provide “spending money” for retirees- not to pay for everything such as shelter, transportation, insurance. I have had long conversations with my older relatives who remembered when it was introduced.

          Then Medicare was added to Social Security, which weakened the financial condition even more- nice work America /sarc.

          Due to historic facts (which are hard to fully understand/model), it looks like governments need to provide some kind of income security during emergencies, such as a depression. However, embedding a program like this into perpetuity results in these predictable poor results.

          This has also made Americans “hyper-consumers” because they think there is always a government backstop if the go broke- so they spend everything. They didn’t do that before all these government programs. Thanks again.

          Good luck with that.

        • andymul says:

          Wolf, what makes you think the US Treasuries will be repaid in full purchasing power. Highly unlikely IMHO. US debt/GDP is 100% before Medicaid, SS etc. At the end of the chain is the US Fed (private company), buying US debt with zero cost printed money = inflation eventually.

        • Wolf Richter says:

          This is exactly the same risk every investor who holds Treasuries or high-grade bonds faces.

          But I agree, we know for sure, purchasing power will decline. We just don’t know how fast. But this impacts all fixed income investments the same way. So the SS Trust Fund is no different.

        • roddy6667 says:

          Social Security Trust Fund used to hold cash. Now it holds pieces of paper which promise to pay cash. I don’t see how this is more “conservative”.

        • Wolf Richter says:

          Clearly, you don’t understand US Treasury debt, considered the most secure financial asset in the world. That’s what it holds and earns interest on. And it’s not paper. It’s in digital form, just like all other financial assets of this era.

        • roddy6667 says:

          Time will tell how valuable US bonds are. When China and Russia recruit a few dozen countries into a different banking system, the “paper” (digital) will plummet.

        • JerryBear says:

          If I am not mistaken, the majority of the National Debt is owed to Social Security.

        • Wolf Richter says:

          Not quite – thank God!

          The gross national debt is almost $20 trillion. I’ll write about it when it hits that number. The SS Trust Fund, which is what the Treasury owes Social Security, is about $2 trillion. So about 10% of the gross national debt is owed SS. Other Government pensions funds are owed some money too.

    • nick kelly says:

      If you take a look at what police and fire pensions pay out and when they begin, it’s amazing any are solvent. They’ve bankrupted ( literally) several cities in California, e.g. San Jose.
      Everyone one wants to talk about bankers, CEO’s etc.
      For everyone of those there are thousands of public sector employees.
      Here in Canada it’s just accepted that public sector pensions are in a different realm than others.

    • Bill says:

      Raising the retirement age would be devastating to those of us who are inches away from the current age now. After 45+ years of hard physical work, a guy can only take so much.

      • nick kelly says:

        The changes never affect those anywhere near the current retirement age.

      • Mel says:

        Nor is it any gift to young people who could take the jobs if they were vacant. The whole society needs something more than these patch-up solutions.

    • Jas says:

      I think that a more moderate approach would be to keep the upper end SSI tax bracket as is, ($118,500) but reinstate the tax on income over ~$350,000/year. People who make between $118,500-$200,000 are not mega wealthy and are more likely to use that extra money on things that would stimulate the economy. If you make over $350,000/year, chances are that you live extremely well and most likely don’t spend nearly as much as you deposit in the bank.

    • James McFadden says:

      Besides removing the cap, why not apply SS tax to all unearned income too. Then it becomes a flat tax like all those conservatives have clamored about for years. This might actually allow us to lower the payroll tax rates on people who actually work and allow us to raise benefits for our seniors so they don’t have choose between eating cat food and heating their apartment.

      Of course the ruling class would never allow that to happen because the greed of the investor class (what economists used to call rentiers and what Michael Hudson calls the parasite class) is insatiable, and our current corporate crony politicians who make the laws have become beholden to them. Together the investor class, along with their lawyers and their politicians, have formed the corporate mind.

      And “… the corporate mind …does not care who it is, for it is not anybody; it is a mind perfectly disembodied. It does not care where it is so long as its present location yields a greater advantage than any other. …The corporate mind at work overthrows all the virtues of the personal mind …knows no affection, no desire that is not greedy, no local or personal loyalty, no sympathy or reverence or gratitude, no temperance or thrift or self-restraint. … justifies and encourages the personal mind in its worst faults and weaknesses, such as greed and servility, and frees it of any need to worry about long-term consequences.” Wendell Berry

      Perhaps pensions were a scam – a way for corporations to pay workers less today with the promise of taking care of them in their old age. But corporations had no intention of following through – if lying puts them at an advantage, they lie. The corporate leaders knew this was a scam from the beginning – the hucksters sold us a pig in a poke – and now they raid what little had been set aside for pensions using corporate take-overs and M&As. Even local and state governments have gotten into the pension raiding and underfunding business — all so they could tax the corporations less and get their kickbacks in campaign donations.

      SS was supposed to be a safety to prevent our elderly from becoming indigent — because how we care for our elderly, our children, our prisoners, and our handicapped says everything about the morality of our society. It is our moral duty to take care of them. Money is not an issue, just the time to take care of them. Money is just a mechanism for allocating that worker time. There are plenty of us to do this necessary work as long as we don’t waste our time servicing the fetishes of the uber wealthy. And here is a key myth of capitalism – that money capital must grow and flow to the capitalists. Why? To service the fetishes of the uber wealthy. But is servicing their fetishes so damn important that we must leave our children and elderly hungry? Think about it. SS can’t go broke unless we choose the immoral path that allows the uber wealthy to continue to indulge their fetishes while the poor are left to die.

      • RepubAnon says:

        Pensions weren’t a scam until the Reagan years, when the venture capitalists saw big pots of cash in the corporate pension funds, and found ways to legally drain them by claiming they were “overfunded”, and then doing a “reversion” while the Reagan Administration talked about the joys of deregulation.

        Kind of like what Reagan did – raised the Social Security contributions, and used those funds to offset his massive deficits.

      • JerryBear says:

        For those fondly recalling the “good old days”, before the social security act it is estimated that about 90% of the elderly lived in poverty and destitution. Big business seldom paid enough to allow workers to save for their retirement.
        This even though most working class families were extremely frugal.

  2. John M says:

    “The Social Security Trust Fund is going broke unless some drastic actions are taken. The facts are not in doubt, just the exact day that the last money flows out. Estimates run from 10-15 years.”

    You’re dreaming if you think that SS is going to be here in 10-15 years. We’ve got massive inflation in the pipeline and the funds paid out won’t cover poverty that will be wrought on us but the wonderful Federal Reserve and other central banksters from around the world. We slow marching towards economic meltdown of unfathomable proportions.

    Is it any wonder we now have a political party in Iceland known as the Pirate Party? We’ve Front Nationale in France about to take the reigns in 2017. We’ve Trump trying on his slippers for the Whitehouse and Alternative for Deutscheland running roughshod over Merkel. We’ve team of comedians in Italy known as the 5Star Movement. The game of life in western democracies is facing a global reset. We are going to get one. You can take that to the bank. Everyone is effectively insolvent.

    The ramifications of debt are everywhere. We all need to learn how to run home gardens as the money we thought we had stashed away for retirement isn’t really there..

    Apologies for my spelling of reigns as I figured FN will be in control of the French assembly in 2017

    • Wolf Richter says:

      Here is the irony about SS going broke.

      When I was in high school, I dated a girl whose dad – a CPA – told me back then that SS would go bankrupt, that it wouldn’t be around for him, and certainly not for me.

      He passed away last year, after having received full SS benefits for many years. I’m getting dreadfully disconcertingly awfully close to being eligible for SS as well, and SS is still there, decades after it was supposed to collapse.

      This story will repeat itself, with dads telling their offspring and their dates that SS will disappear, and in the end, we disappear before SS does.

      • polecat says:

        I don’t know Mr Rickter … I think this time is different !

      • nick kelly says:

        Canada’s CPP is on solid footing but at a price- deductions going ( or have gone) to 9.9 percent.
        And incoming Liberals just axed former govt raising age from 65 to 67.
        Very expensive move.
        I expect our GST to go up at some point in the kid’s era.

  3. RD Blakeslee says:

    As the underpinnings of our society crumble, what happens next?

    • walter map says:

      “As the underpinnings of our society crumble, what happens next?”

      The obvious solution is to automate and roboticize all your income streams so your wealth doesn’t depend on the existence of a viable society and can get by just fine on the desperate labors of a few hundred million debt peons.

      So far, so good.

  4. Ptb says:

    What if they were to shift SS to a needs based model…call it insurance?
    I’ve talked to a lot of people that could take early retirement and that does seem to be a trend now as they’ve all heard how their plan may not be solvent in the future. It’s kinda funny because the discussion used to be about how to maximize the pay outs and now it’s shifted to getting it as soon as possible because it’s days are numbered.

  5. Tom Kauser says:

    Federal reserve
    Social security

    You cant have both!

  6. Ptb says:

    The author does make an interesting point about how much of this money gets immediately injected into the economy. When you add up all the money spent every month from checks distributed by the gov, it’s actually a pretty big part of our consumer economy. A kind of continual stimulus package.

    • Tom Kauser says:

      The wages never circulate! The bank sweeps everything into an overnight fed account for.35%.
      AUM is used to gamble on derivatives and stuff the bonus pool!
      Nothing but off book “hedged” side bets on who goes bust next! And a lot of free money in between panics?

  7. walter map says:

    It’s tough to maintain pension plans, SS, or any retirement plan at all with an economy where all proceeds are being redistributed to the fabulously wealthy and to the exclusion of the general population.

    Impossible, in fact – once TPTB have sucked the corpse dry.

    All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.

    – Adam Smith

  8. Enquiring Mind says:

    Dallas police and fire situation is likely repeated across the country, with some publicized bankruptcies already in California over the past few years. At some point, cities, counties and states (Illinois among others) may need to continue to monitor and revise the employment terms and qualifications further to eliminate pension spiking (e.g., basing pension off the last three years that were juiced up with overtime) and lengthening the employment term.

    Many first responders and other government employees are likely fit to work beyond 45-50 or other fairly low age, as evidenced by double dipping (hired into new post office job before age 40 with veteran preference, then retiring “again” at 58 like my grade school classmate) and even triple dipping. Asking for more years of service to receive lifetime pension and healthcare would be a reasonable request to most people, and the competition for those positions would be keen, in the absence of favoritism, nepotism or similar inhibitions.

    That is not a popular position, but the difficult questions must be asked of all (e.g., why not eliminate carried interest for PE investments).

    • Petunia says:

      When I lived in Palm Beach County, Florida the police and emts were the best paid people in the county. They were among the highest wage earners. A police officer made over 100K and an emt about 113K with 3 emts assigned to a vehicle. Those wages and conditions were better than New York City police officers and emts.

      I recall watching, right before the financial crisis, a county commissioner’s meeting, they were all locally televised, where the police contract was guaranteed a pension rate of return of 8%. One of the commissioners tried to argue that that was very high and the market would not be able to sustain that return, but no body else agreed. When the market crashed and nobody was paying property taxes those contracts became a real problem. They probably still have a hole in their pension plan right now. I know the state of Florida does.

  9. joel says:

    The S.S. cap has always been on the wrong end. Those getting the minimum wage should not be supporting the fund so those making over $118k don’t have to.

    Sometimes I think if I could learn to walk on my hands, the world would look less upside down and backward.

    • walter map says:

      “Those getting the minimum wage should not be supporting the fund so those making over $118k don’t have to.”

      Interestingly enough, lots of people who made more than $118k/year are getting the maximum SS benefit, even though they never paid into it – loads more than the millions of people who earned little more than minimum wage, who did.

      Many, many are the ways the poor subsidize the rich, and this is only a very small example. To be sure, $118k/year isn’t even all that rich – it just seems that way to people who can’t make ends meet on three part-time jobs. Those who are actually wealthy get far sweeter deals – and they are also eligible besides

      If this seems unfair to you, it is. Naturally those who can afford to buy off politicians like the present system just fine.

      • John says:

        Walter – help me understand what you mean. I make just a little over $118k a year, and while I’m grateful for that, I would like to understand one of the “many, many ways the poor subsidize (me) the rich”. The bottom 42% of wage earners in this country pay no ‘net’ income tax, and I can assure you that I pay plenty. I could go on, but I’m curious to see how you can possibly back up your assertion.

        • walter map says:

          Hey John, you’re entitled to the maximum SS benefit, even though you have no obligation to pay into it.

          In 2010, 47,535 millionaires received Social Security benefits, according to SSA. The number likely goes up every year. You could be one of the lucky ones.

          No telling how many billionaires are getting SS for free, but then, they get massive tax breaks and immunity from prosecution besides. Every little bit helps.

        • John says:

          That’s it Walter? That’s how “many, many ways the poor subsidize (me) the rich”? I appreciate your response, but that falls short of your original premise…

      • Marty says:

        “Interestingly enough, lots of people who made more than $118k/year are getting the maximum SS benefit, even though they never paid into it…”

        What??? Of course they paid into it. First of all, the $118k is a cap, everything below $118k has a payroll tax.

        Second, to you think that the people who earn more than $118k did so from their first job?

        • walter map says:

          I checked. You’re right. Income up to that limit is taxable. I stand corrected. My apologies.

        • marty says:

          No prob, Walter. It’s very stand-up of you to admit error.

          But I will say, and this may address your impression of what’s going on, that the payroll tax is regressive. It drives me crazy when people say things like, “50% of American’s don’t pay tax.” Total baloney. For most American’s the payroll tax is greater than the 1040 income tax, and they don’t list all the other taxes everyone pays.

          Anyway, remember that the tax code is aimed at the 1. w2 earning middle class, and b. at the rising entrepreneur. The poor don’t pay taxes and the truly wealthy can arrange their affairs to pay only a small percentage in taxes.

          So, Walter, the majority of us are in this together. It’s really a shame that we keep falling for this divide and conquer stuff.

        • Wolf Richter says:

          Marty, you wrote: “It drives me crazy when people say things like, “50% of American’s don’t pay tax.” Total baloney.”

          Me too! Thank you!

          Oh, and then there are all the other taxes, such as sales tax, property tax (which renters pay indirectly), the fees and taxes on the telephone services, fuel taxes, etc.

  10. prepalaw says:

    I agree with Wolf – SS will continue to be here. Public and private pensions are another matter. Look at the Teamsters – private payouts can get cut. State, city and town pension plans can get re-organized in bankruptcy with a cut in benefits.

    Question: Are there finance companies, like Oasis Financial, who will pay up-front money to social security and/or pension recipients. What I mean is this, by way of a hypothetical example: A 68 year old person now collects $30,000 in SS. Has a life expectancy of 15 years. And, today, a payout expectancy of $450,000, not adjusted for anything. Will someone give him $200,000 cash money today on a no recourse basis, meaning that the lender looks solely the assigned payout to collect.

    • Petunia says:

      Your post reminded me that the state of CA, is now clawing back bonuses given to National Guardsmen who were improperly given reenlistment bonuses, even though they served and it wasn’t their fault. There is no telling if those Dallas cashed out pensions will not be clawed back as well. If the pension plan goes bust due to all the withdrawals, the court might go after those that cashed out.

      Nobody knows what the word “is” really means anymore.

  11. Bobo says:

    Since 2000 the S&P 500 has averaged an increase of 2.2% a year. Tack on 2% for dividends and take out 1% a year for expenses, it works out to 3% a year or so. And that is in an ideal world since the components of the average change every year, so you would need to sell a stock just before it’s dropped or buy just before it’s added in order get the index return. 3% is less than 8-10%, which these pension funds need to just break even. Uncle Sam can print money to pay SS, so that’s not really as big of an issue. Uncle Sam will not bail out all these pension plans that over promised. Some of the pension accounting amounts to accounting fraud, although it apparently isn’t illegal since so many do it.

  12. Chicken says:

    Meanwhile the Pentagon burns through in excess of $500B every year, or is it $600B, nobody seems to know where it goes except into someone’s pockets in exchange for them forcing people to leave their homeland and migrate elsewhere.

    • walter map says:

      “Meanwhile the Pentagon burns through in excess of $500B every year, or is it $600B”

      Double that, at least. Half of it is buried in the budgets of other departments and service on the national debt.

      “forcing people to leave their homeland and migrate elsewhere.”

      Chaos creates opportunity – disaster capitalism at its finest. Why target just western Asia when you can use western Asia to screw up Europe? Whole regional populations and their respective governments can be made to chase their tails, eliminating their ability to oppose insidious corporatism. The methods to the madness are the techniques of totalitarianism, generated by well-funded think tanks.

      It hasn’t even gotten ugly yet, much less weird ugly, but it’s easy to see that in a very few years it will truly be surreal.

  13. ML says:

    In UK the parlous state of many private companies including quoted plc on the stock market is a big issue. Cause is put down to legacy of over generous defined payout schemes, almost zero interest rates, low yielding bonds, people living longer, that sort of thing. In some cases, the pension fund deficit exceeds the company’s market capitalisation. Recently an engineering company cancelled its dividend payout to shareholders because of its ballooning pension fund deficit.

    The recent BhS collapse – google search Sir Philip Green and BhS if you want to find out more: the UK parliament house of commons have just voted to have him stripped of his title ‘Sir’ not that it’s thought he would really care, having extracted some £400M dividend for himself – highlighted how the cost of payout to the pensioners would have to be borne by the pension fund lifeboat fund, not quite the taxpayer but not far off. The estimated cost of handing the fund over to an insurance company to manage is put at around £600M (GBP).

  14. Bill says:

    Here’s a little insight into California’s mess, from Jan2016: Despite fairly steady economic growth and state budget surpluses, California’s unfunded public employee pension liabilities are spiking. As detailed by Stanford University research scholar David Crane on the Fox & Hounds website, year-end reports pegged the increase in unfunded pension promises for the California Public Employees Retirement System at $15 billion and for the California State Teachers Retirement System at $9 billion.

    Total spike in unfunded liabilities for fiscal year 2014-15, which ended June 30: $24 billion.

    Before last year, total unfunded pension liabilities, as detailed in Gov. Jerry Brown’s budget proposal for fiscal year 2016-17, were $72.7 billion for CalSTRS and $43.3 billion for CalPERS. Adding up everything, the new total unfunded liability for both giant pension funds is $140 billion.

    • David G LA says:

      It’s a slowly sinking ship. You have time to get into a lifeboat. Move.

      • Bill says:

        Yup. Planning on it. My wife can collect her CalPers from the safety of another state while we don’t pay for it’s bailout.

        • d says:

          “Yup. Planning on it. My wife can collect her CalPers from the safety of another state while we don’t pay for it’s bailout.”

          Watch them close that loophole. Others are closing similar.

  15. No Rush says:

    If the pensions start to come up short, the governing bodies will simply send addendum pension bills to each real estate pin # holder on a quarterly basis. That is what our town is saying they will do in the Chicago North suburbs to cover the fire/police pension shortfall. And they claimed they were well run and fully funded as recent as a year ago.

  16. Gil Obrero says:

    I am amazed that on a site like this so many commentators are ignorant of two very simple and very salient facts.
    One, All pension schemes are essentially ponzi schemes in nature.
    Two. All pension schemes are socialist in nature.

    Now apply some simple logic.

    I have never ever in my life put one cent into a pension scheme, I never have and never will, Any earnings I get I will be the sole and only one who will have total control over those earnings, how they are applied and where.

    I will never ever worry about future income to live. I have more than enough, tax free in a tax free jurisdiction and incapable of being plundered.

    From the very first pension scheme ever designed, subsequently proven to be a fraud, pensions have always been and always will be a scam designed to relieve some “substantial portion” of your earnings to feed investment managers, bankers and politicians lawyers and all manner of dregs that come out of the woodwork to feed off those funds.

    How? simple,, They feed on your fears that you will never have enough, that you will die in poverty if you don’t invest with them.

    Well I for one am not stupid enough to fall for it, and I am not stupid enough to pay for your losses when the time comes either, through taxes.

    hopefully people will understand how they were robbed throughout their lives when tens of millions really are starving because they let them get away with these scams and bought into it.

    Then reality might set in and the world go back to the times that for thousands of years managed without pension scams

    • Petunia says:

      Some people don’t have the choice of opting out of the pension. In the state of Florida there is a minimum all employees must contribute.

    • JerryBear says:

      You mean those times when they would set the elderly out on ice floes or something? You must live on a desert island somewhere and you are welcome to it.

  17. Raymond C. Rogers says:

    This is what you get when you have a massive government. Property is right. Not heathcare, not social security, nor anything else.

    Cut the benefits now. Or are future generations suppose to bear the full brunt? Young people are called irresponsible, yet I don’t see seniors calling for cuts that their generation is a partially responsible for.

    1) SS is a ponzi scheme. Even if the govern mentioned did not raid the funds, it was still unsustainable. If a system needs a model where there are more workers than retirees, then this should be blazingly apparent that this is not a program, but a scheme.

    2) The program is built on debt. It is funded with instruments of debt.

    3) Those that are responsible will be expected to pay for the irresponsible. I have mone because I have earned it, and chose not to spend it. Now people want to means test SS. I chose to scrimp and save and forgo the new nice car, a mansion in a Liberal cesspool city, or a vacation. I save for tomorrow, yet people here feel that the government should tell people like me who are actively saving to take a hike. For many people, their financial situation is their own damn fault. If you want to walk around like a mindless consumer, by all means do so, but don’t cry to me when big brother can’t take care of you. I’ve paid into SS against my will, so I expect at a minimum what I put into it.

    4) If we had a government that covered the basics, we would not be talking about massive debts, deficits, wild monetary policy, massive graft, and crony capatalism. This SS scheme is just a part of the mayhem. Like many other programs, it is generational theft.

  18. d says:

    Wolf was that girls name Meredith Whitney.

    Like Meredith, that girls father wasn’t wrong about the SS collapse, just the TIMING.

    NIRP and ZIRP along with falling wages and Real Employment % (So tax take) guarantee that.

    • Wolf Richter says:

      Here’s what you forget: people who are 50 and over and who paid into the SS system all their lives are dedicated voters when it comes to SS. That’s why we call SS reform the “third rail.” Try to touch it, as a politician, and you’re toast. So tweaking at the edges yes. But allowing it to fail? NO. The Fed printed $3 trillion in the span of 5 years to bail out the wealthy. It can print $200 billion a year to bail out SS, if all other efforts to fix it fail.

      • d says:

        You slightly further up the ladder in the tail of the baby boom than I am.

        The post 55’s are the tail that will get slaughtered, that has been forced to pay all its lives, for something, it will not as promised, receive.

        All over the world, entitlement ages are being raised, in developed country’s, and payment levels are being reduced.

        You have great faith in FDIC and SS.

        From a global perspective. To much faith.

        America will be well, America will be well, until your SDR percentage is reduced and you treasuries become less dominant. Which is a possibility some are trying to turn into a reality. All this not signing TTP insanity, would contribute to that reduction in treasury dominance.

        Then what, that’s before we consider a major financial implosion event in the Euro zone or china. To many black swans floating around there, just to many.

        As for the third rail, others have shown America. You can tweak that rail, repeatedly, and get away with it. If the tweaks are all small, then 15 years on, it dosent look or paym anything like it did for the pre 55’s.

        I have it mapped out on a calendar, and government interviews confirm it.

        Prime-minister said in a speech’s, ages will be raised about this time, by about this much. In an election year and still got reelected. As he lost very little of the grey/rail vote, as he only hit the post 55’s and didnt talk about the also inevitable payment reduction’s

        2 years before I get to collect, they will increase the age, by 3 to 5 years ( Australia and England have already raised ages once) and 5 Years later, they will do it again (it ties in with the election cycles). Holding me out for an extra 8 years, at a minimum.

        America is watching. What country’s like ours, and similar, (as ours is not the only country doing it) where payments for benefits many will never be allowed to claim, have been, and still are, compulsory. Do, and how much push-back they get in the process.

        like I said. You have great faith in FDIC and SS.

        From a global perspective. To much faith.

  19. night-train says:

    The two previous commenters apparently believe that their lives are always going to go as they planned. Want to hear God laugh? Announce your plans. One thing about being my advanced age is that I have seen many folks eat their words, including a couple of helpings for myself.

    There is no perfect government. But we need some type of societal organization. The system here in the US of A works fairly well, all things considered, although constant vigilance is required and some restructuring now and again.

    Asking why some workers have pensions and insurance is asking the wrong question. The question should be why don’t all workers have these benefits.

  20. r cohn says:

    Ways to “fix “SS
    1.Raise the retirement age-The retirement age has already been raised from 65-67 and will inevitably be raised more
    2.Raise benefits by less than inflation-This is already happening
    3.Increase the maximum wage base-This has happened before and will happen in the future
    4.Reduce benefits once specific income levels are reached

    Ways to pay for local pensions
    1.Reduce benefits for new emplyees
    2.Reduce benefits for current retirees
    3.Require employees to increase their contributions
    4. Raise taxes

    # 2 and 3 have been and are sure to be opposed in the future.
    #4 has already taken place.But the higher the taxes ,the more likely that people and businesses will move.Eventually the tax base will be reduced so much that the pensions become completely unaffordable

    It is inevitable that there will be massive numbers of cities and municipalities declaring Chapter 9.States are a different animal since their are no legal provisions to do so.


  21. As in so many things, the pension “crisis” is the unintended consequence of expedient governmental actions, which were intended to solve an immediate “problem,” which in many cased they did, at least in the short term, but at horrendous long-term cost.

    One of the first of these in the modern era was the “deregulation” of the S&Ls, in order to “fix” their immediate cash flow problems caused by borrowing short [deposits] at variable rates and lending long [home mortgages at fixed rates. For the first year or two, this seemed to work, but ultimately collapsed the S&Ls at huge cost to the taxpayers.

    The three current major factors in the pension shortfall seem to be:

    (1) the static to falling real inflation adjusted median individual and family income for 40 years, combined with an increased [sales and fees, not so much income] tax burden combined with the significant loss of employee related benefits such as defined benefit pension plans and medical insurance [the anticipated grown in wages, and the resulting increase in pension contributions did not occur];

    (2) the financial repression of the N/ZIRP which prevents the pension funds from earning a reasonable return on their funds which in many cases are limited by law to AAA rated bonds and Treasuries, combined with a failure in many cases of the employers to make the required contractual payments into the pension fund; and

    (3) the proliferation of the so-called “free trade agreements,” such as NAFTA, TPP and TTIP, which wiped out most American manufacturing with its high paying jobs, which paid significant taxes, pension fund and FICA contributions, and replaced these with minimum wage service jobs.

    Note that robotics/automation/computerization is eliminating many of the remaining high/medium skill/paying jobs in not only manufacturing but also “middle management” and transportation, e. g. self-driving trucks, buses, and cabs.

  22. Kevin says:

    The problems of SS–which are substantial–are tiny compared to those of Medicare, which will bankrupt us.

    Dallas is in the fastest-growing state in the strongest economy in the country. Just a couple of years back TX was responsible for over 100% of all new job creation in America. If Dallas can’t get their books to balance, what does it say of, say, Providence RI? Or Milwaukee?

    They are Ponzi schemes. Always were. There was always an implicit understanding that the Boomer generation of America and Europe could vote themselves ever-more generous pension benefits and pass it on to their kids. Problem is, they didn’t have enough kids. And so now the Western world has run out of young people to stick the bill to.

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