A recent report from Moody’s estimated that total unfunded pension liabilities — or the amount pension plans owe vs. what they have — across U.S. state public pension plans is forecast to increase 40% to $1.75 trillion through fiscal year 2017.
That’s trillion with a “t”!
In fact, by some accounts, that figure could be closer to $4.0 trillion when considering ALL state and local government pension programs.
Truthfully, I almost fell out of my chair when I read those numbers.What the hell happened?
A number of forces are guilty, including plans assuming an annual rate of return of 7.0% to 7.5%. That’s a big problem when the median pension plan returned just 0.52% in fiscal year 2016.
But it gets worse …
These unfunded liabilities keep getting bigger and bigger each year, because of low returns and a consistent trend of bad management.
Plus, an aging demographic is exacerbating the problem, with fewer workers paying for benefits.
In fact, it looks like California is soon to be in line for a TARP-like bailout, with that state’s total pension program (CalPERS) unfunded liability estimated at $950 billion.
The situation is also brewing in Dallas, with last year’s underfunded pension liability estimated at $1.2 billion. The situation is made worse following a 12.5% loss in the market during 2015.
So, who’s gonna pay for this mess?
You, the taxpayer, that’s who.
In fact, pension problems will likely impact every U.S. taxpayer at a mind-blowing rate. And that’s true even if they are not directly connected to state and local pension programs.
Think about this …
A key factor in Detroit’s bankruptcy was unaffordable pension costs. Other cities that have “gone under” in recent memory include: Vallejo, Stockton and San Bernardino.
And there are more trouble areas brewing, like Los Angeles, Chicago, New York, Philadelphia and New Jersey.
But state and local governments aren’t the only ones dealing with staggering underfunded pension plans: Many U.S. corporations are suffering, too.
Consider the following corporate underfunded pension liabilities …
General Motors (GM) at $18.1 billion
Bottom line …
The growing amount of underfunded pension liabilities poses a real threat to U.S. growth and solvency in the years to come. According to my wave analysis, the pension crisis should reach full tilt by the end of 2017 and hurt a lot of people in the process. Real Wealth Report members will be fully prepared – will you?
Best wishes,
Larry
James October 24, 2016
The article above is very good by the way. Martins and Larrys articles outlining the booms and busts, bull markets and bear markets are very pejorative.
James October 23, 2016
Real Wealth Report for two thousand dollars is a huge some of money. Sure that can be 1/7th of a years salary for working full time. Think of how much food two thousand dollars would buy you. That’s not sarcasm by the way.
James October 23, 2016
Real Wealth Report for two thousand dollars is a huge some of money. Sure that can be 1/7th of a years salary for working full time. Think of how much food two thousand dollars would buy you. That’s not sarcasm by the way.
Ellis Kent October 23, 2016
I fear that politicians will raid private sector pensions. The story is the same across the western world where public sector employees feel themselves hard done by. I have a senior UK civil servant friend who retire on 120,000 GBP per annum. However, he believes himself hard done by compared to contemporaries who earned more money although we had to save 30 percent of our salaries from the get go to get 60 percent of final salary if lucky! His contribution was 2 percent of salary! Politicians bought votes and mortgaged the future. None of this was predicted by our well paid actuarial profession!
Tom McKenna October 22, 2016
It looks like state local and coperate pension planners took index averages from the go go eighties when returns were returning annual rates of 7 to 7.5 percent and assumed this would generally be the rule of thumb. They didn’t seem to take into account the ravages of bubbles, recessions and job reductions would have on an anemic GDP that we have witnessed for the better half of the Obama administration. Mr. Edelsons predictions for worsening conditions for short term unfunded liability pension funds is catastrophic.
Tom McKenna October 22, 2016
It looks like state local and coperate pension planners took index averages from the go go eighties when returns were returning annual rates of 7 to 7.5 percent and assumed this would generally be the rule of thumb. They didn’t seem to take into account the ravages of bubbles, recessions and job reductions would have on an anemic GDP that we have witnessed for the better half of the Obama administration. Mr. Edelsons predictions for worsening conditions for short term unfunded liability pension funds is catastrophic.
Tom October 22, 2016
What will 2016 bring? We need advice on how to hold what we have. The
future looks bleak.
Tom October 22, 2016
What will 2016 bring? We need advice on how to hold what we have. The
future looks bleak.
britt thompson October 22, 2016
thanks larry for putting out what i think of as the state of the world situation, no one will listen however because they keep on thinking every thing is just peachey!so much of the change for the last 60 years here in the states has been for the better people just wont believe that the debts are going to come due soon! God blesslarry !Britt Thompson
britt thompson October 22, 2016
thanks larry for putting out what i think of as the state of the world situation, no one will listen however because they keep on thinking every thing is just peachey!so much of the change for the last 60 years here in the states has been for the better people just wont believe that the debts are going to come due soon! God blesslarry !Britt Thompson
gordon October 22, 2016
A great article Larry a true wake up call. Debt debt and more debt. Debt just robs future spending by the we want it now crowd and it just makes households more brittle and fragile. 2017 looks like the year that the chickens come home to roost. Looking at the market indexes above the markets are still playing follow the leader the leader being the US. Fundamentalism is dead as well as honest corporate reporting. We truly live in a snakes and ladders world pass the dice.
gordon October 22, 2016
A great article Larry a true wake up call. Debt debt and more debt. Debt just robs future spending by the we want it now crowd and it just makes households more brittle and fragile. 2017 looks like the year that the chickens come home to roost. Looking at the market indexes above the markets are still playing follow the leader the leader being the US. Fundamentalism is dead as well as honest corporate reporting. We truly live in a snakes and ladders world pass the dice.
Peter W October 22, 2016
Problem is: there are 2 many licensed paper-pushers who do not understand Yield & Risk. And the people at the top & upper echelons of these after 1998 (Glass-Steagle demise)corporate behemoths…so-called “Investment Banks” are only interested in one thing…Transaction Fees! No decent Yield…who gives a S**t? I have direct experience with 2 of these companies. They are TRANSAMERICA & MASS MUTUAL. TransAmerica’s Growth Fund made a little over 7%Yield in ALL of 2015…these geniuses did NOT have FACEBOOK in their Growth Fund probably because no dividend offered yet FACEBOOK stock went up 31.5% in 2015. Besides APPLE & MICROSOFT in their Growth Fund, u should see the Clunkers in their so-called Growth Fund.
Mass Mutual has Funds that ALL made less than 6.5% in 2015…some year after year in the negative. But they get $8-$14/$1000 for their rip-off Transaction Fees. How many 401 K’s do these 2 Companies manage? Nobody is minding the Store and u fell out of ur chair, LARRY!
Peter W October 22, 2016
Problem is: there are 2 many licensed paper-pushers who do not understand Yield & Risk. And the people at the top & upper echelons of these after 1998 (Glass-Steagle demise)corporate behemoths…so-called “Investment Banks” are only interested in one thing…Transaction Fees! No decent Yield…who gives a S**t? I have direct experience with 2 of these companies. They are TRANSAMERICA & MASS MUTUAL. TransAmerica’s Growth Fund made a little over 7%Yield in ALL of 2015…these geniuses did NOT have FACEBOOK in their Growth Fund probably because no dividend offered yet FACEBOOK stock went up 31.5% in 2015. Besides APPLE & MICROSOFT in their Growth Fund, u should see the Clunkers in their so-called Growth Fund.
Mass Mutual has Funds that ALL made less than 6.5% in 2015…some year after year in the negative. But they get $8-$14/$1000 for their rip-off Transaction Fees. How many 401 K’s do these 2 Companies manage? Nobody is minding the Store and u fell out of ur chair, LARRY!
dave strough October 22, 2016
When Jerry Brown was governor of California (the first time) in the mid 70’s, there wasn’t any public pension system for state employees….until he signed a bill in 1978 allowing them to unionize. Due to heavy union pressure, he caved and started CALPERS funded 100% by taxpayers (along with taxpayer funded health/dental benefits). Over the next 36 years, the state has mismanaged the retirement system and used unrealistic rates of return. They have also been divested investments, with higher rates of return, due to political and environmental prejudices greatly affecting the growth of the pensions. During this time, Brown signed a bill changing the legislature from part-time to full time meaning we taxpayers have had to foot the bill for salaries, staff, health/dental insurance and of course another set of pension liabilities.
Two cities, Valejo and Stockton, declared bankruptcy a couple years ago due to unreasonable pension obligations and another 3 or 4 are teetering on the brink of the same result for the same reason. As you know, if California goes belly up, they will look for another Tarp-type bailout that may be as high as $130 billion. Due to the current national debt hovering around $20 trillion, Washington will try printing more “monopoly” money as they did for QE 1, 2 and 3 ($4 trillion) to save the too big to fail Golden State.
dave strough October 22, 2016
When Jerry Brown was governor of California (the first time) in the mid 70’s, there wasn’t any public pension system for state employees….until he signed a bill in 1978 allowing them to unionize. Due to heavy union pressure, he caved and started CALPERS funded 100% by taxpayers (along with taxpayer funded health/dental benefits). Over the next 36 years, the state has mismanaged the retirement system and used unrealistic rates of return. They have also been divested investments, with higher rates of return, due to political and environmental prejudices greatly affecting the growth of the pensions. During this time, Brown signed a bill changing the legislature from part-time to full time meaning we taxpayers have had to foot the bill for salaries, staff, health/dental insurance and of course another set of pension liabilities.
Two cities, Valejo and Stockton, declared bankruptcy a couple years ago due to unreasonable pension obligations and another 3 or 4 are teetering on the brink of the same result for the same reason. As you know, if California goes belly up, they will look for another Tarp-type bailout that may be as high as $130 billion. Due to the current national debt hovering around $20 trillion, Washington will try printing more “monopoly” money as they did for QE 1, 2 and 3 ($4 trillion) to save the too big to fail Golden State.
Clive October 22, 2016
Larry, Why will we, the tax payers, be liable for the mismanagement of municipal and state pension funds? Their overly aggressive and uneducated union negotiators and irresponsible management are entirely responsible for their own decisions, and the consequences of those decisions. If the Government sets the precedent of bailing any one of these groups out, the need for financially responsibly negotiation between employees and management will be entirely eliminated nationwide.
With thanks for your straight forward approach to the issues that face us, from Clive.
Mike angelo October 21, 2016
In the real wealth report is there timed buy and sell signals for gold/silver with recommendations ? How much does the service cost ? Do you see it as time to buy gold stocks now ?
Mike angelo October 21, 2016
In the real wealth report is there timed buy and sell signals for gold/silver with recommendations ? How much does the service cost ? Do you see it as time to buy gold stocks now ?
David Reynoldson October 21, 2016
What are your thoughts about rumors of the Fed taking over all pensions to get the available funds now to bolster their out of control spending and issuing bonds to cover their theft?
David Reynoldson October 21, 2016
What are your thoughts about rumors of the Fed taking over all pensions to get the available funds now to bolster their out of control spending and issuing bonds to cover their theft?
Scott Hartzler October 21, 2016
Arrogant EA actuaries + zero interest rates + defined benefits = TARP
Scott Hartzler October 21, 2016
Arrogant EA actuaries + zero interest rates + defined benefits = TARP
Steven October 21, 2016
That is the year when the Piper will demand his payment after all these years that we have been calling the tune.
Larry May October 21, 2016
Why has the daily chart of Gold, etc prices been discontinued. I know there are other sources, but this location was very helpful for me.
Larry May October 21, 2016
Why has the daily chart of Gold, etc prices been discontinued. I know there are other sources, but this location was very helpful for me.
ken October 21, 2016
What is to prevent central bankers from simply creating the money digitally. An excellent use of the “helicopter”!
ken October 21, 2016
What is to prevent central bankers from simply creating the money digitally. An excellent use of the “helicopter”!
anthony g October 21, 2016
wow the crash and burn is coming
Mike S October 21, 2016
Between this and the national debt we are boxed in with the current economic programs( if you want to call it this)
It will sink the economy with the additional taxes needed to correct this.
The vast majority of this pension pain is caused by manulipitated interest rates from the Federal Reserve.
Mike S October 21, 2016
Between this and the national debt we are boxed in with the current economic programs( if you want to call it this)
It will sink the economy with the additional taxes needed to correct this.
The vast majority of this pension pain is caused by manulipitated interest rates from the Federal Reserve.
books October 21, 2016
Prudential is handling our pension from a career at GM. Are you saying that Prudential is underfunded for the GM retirees it’s annuity is paying? Where can we get more info?
plumb level square October 23, 2016
Prudential is who GM hired to administer and disburse the funds to you. GM provides Pru with the money. Prudential is not underfunded, the GM retirement fund is underfunded (join the club). If you want to do a little research, check out the Teamsters Central States Pension Fund, and its underfunding issues. The managers of that fund tried to get Congress to make it last longer, albeit with smaller payments beginning now, and were turned down. The managers said they don’t have any further plans on how to rescue the plan, and won’t even try to come up with one. So it is doomed to failure.
books October 21, 2016
Prudential is handling our pension from a career at GM. Are you saying that Prudential is underfunded for the GM retirees it’s annuity is paying? Where can we get more info?
plumb level square October 23, 2016
Prudential is who GM hired to administer and disburse the funds to you. GM provides Pru with the money. Prudential is not underfunded, the GM retirement fund is underfunded (join the club). If you want to do a little research, check out the Teamsters Central States Pension Fund, and its underfunding issues. The managers of that fund tried to get Congress to make it last longer, albeit with smaller payments beginning now, and were turned down. The managers said they don’t have any further plans on how to rescue the plan, and won’t even try to come up with one. So it is doomed to failure.
JD October 21, 2016
Larry…your kidding me right? I knew about unfunded pension liabilities several years ago. This news could be located across the internet for several years now.
What really concerns me is the Dyn internet outage that occurred today on the east coast and spread to the west coast. Web sites down everywhere….keep cash, physical gold and silver within your reach…if its written on a piece of paper it’s worth the paper its written on.
Godspeed my friend’s…pray
Nels October 24, 2016
Bruce Schneier’s take on the DDOS attacks is that they are a hostile state making preparations for shutting down the internet. Schneier is often right on security matters.
F151 October 21, 2016
Liberal (usually Democrat) politicians have given workers at government agencies incredible raises and benefits over the past 25 years (packages that are way out of line with the market).
In return, the politicians have received tremendous political “contributions” from the govt employee unions. It is a vicious, corrupt cycle and the taxpayer is, as usual, the big loser.
And it is no surprise that the govt pension funds are not capable of supporting the huge packages promised. Most of the funds project a ROR of 7.5%. And that is totally ridiculous. Most are earning less than 2% ROR per year these days and many less than 1.
Terry Turner October 27, 2016
God bless you. Well said, Its to bad all the takers see it coming.
F151 October 21, 2016
Liberal (usually Democrat) politicians have given workers at government agencies incredible raises and benefits over the past 25 years (packages that are way out of line with the market).
In return, the politicians have received tremendous political “contributions” from the govt employee unions. It is a vicious, corrupt cycle and the taxpayer is, as usual, the big loser.
And it is no surprise that the govt pension funds are not capable of supporting the huge packages promised. Most of the funds project a ROR of 7.5%. And that is totally ridiculous. Most are earning less than 2% ROR per year these days and many less than 1.
Terry Turner October 27, 2016
God bless you. Well said, Its to bad all the takers see it coming.
Kevin October 21, 2016
Hi Larry,
Living in Thailand, do you keep the bulk of your wealth inside or outside of USA? I travel to Asia frequently so should I consider offshore banking and gold storage, say in Singapore,, as part of my strategy?
Your thoughts,
Kevin
UDO October 23, 2016
Kevin you need more than 50 oz. of gold to have it in a diff. country . How do you sell it if you don’t live where the gold is ? I’m sure ” somebody will help you ” in Asia to get ride of your gold . Easier to have shares in a gold Co. – think about it .
Kevin October 21, 2016
Hi Larry,
Living in Thailand, do you keep the bulk of your wealth inside or outside of USA? I travel to Asia frequently so should I consider offshore banking and gold storage, say in Singapore,, as part of my strategy?
Your thoughts,
Kevin
UDO October 23, 2016
Kevin you need more than 50 oz. of gold to have it in a diff. country . How do you sell it if you don’t live where the gold is ? I’m sure ” somebody will help you ” in Asia to get ride of your gold . Easier to have shares in a gold Co. – think about it .
I agree October 21, 2016
THANKS FOR ALL THE USEFUL INFORMATION
I agree October 21, 2016
THANKS FOR ALL THE USEFUL INFORMATION
Dick Braatz October 21, 2016
Larry: let’s add to that insurance companies (life especially) and annuities that assumed future returns to meet future claims. Will that long-term care benefit be there or life insurance benefit, short of being reduced or major rate increases. Negligible interest rates are hollowing out these companies. Dick Braatz
David October 21, 2016
Larry,
With these issues also impacting corporate America, how will the market continue to increase, as you predict it will?
David October 21, 2016
Larry,
With these issues also impacting corporate America, how will the market continue to increase, as you predict it will?
Brian October 21, 2016
Larry, if you projections for US the stock market are accurate, how will these funds have a problem increasing returns?
Neal October 25, 2016
Maybe Larry doesn’t take his unprecedented bull market prediction seriously.
Brian October 21, 2016
Larry, if you projections for US the stock market are accurate, how will these funds have a problem increasing returns?
Neal October 25, 2016
Maybe Larry doesn’t take his unprecedented bull market prediction seriously.
Siggy Latarski October 21, 2016
Hi Larry, You mention New York as a city with pension fund problems. Does this include the New York City Police Department Pensions? I’ve ben advised that NYPD pension funds are extremely solvent and in good shape.
Bill Morris October 25, 2016
Larry- Thanks for your advise on gold and gold mining stocks. You have supplied a lot of discipline to me on how I am investing. I started gradually, buying around Oct. 6 and about 7-10 days ago I was all in. My biggest buy is ETF, JNUG (3xBULL SHARES). I also have (CDE, BTG,KLDX, OGDCF and TGD). I plan to follow your gold graft closely and, around Oct 31, I’ll buy JDST for a few days until Gold corrects and (also to avoid capital gains) sell it around 2017 or until you publish another graft.
Do you have 2 or 3 more mining shares that are as good? Many Thanks, Bill Morris