Skip to comments.85% of Pension Funds to Fail in Three Decades
Posted on 04/12/2014 11:54:28 AM PDT by Kaslin
Bridgewater Associates did an analysis of pension funds recently and concluded 85% of them will fail if returns average 4%.
Bridgewater notes that public pensions have just $3 trillion in assets to invest to cover future retirement payments of $10 trillion over the next many decades. It would take an investment return of roughly 9% a year to meet those obligations.
With the 30-Year long bond yielding a mere 3.5% and with stock valuation through the roof, I expect negative returns for 7-10 years.
Stretched out over 30 years, 4% seems about right. 9% is out of the question.
CNBC has further analysis in Report: 85% of pensions could fail in 30 years
Influential and well-regarded hedge fund Bridgewater Associates Wednesday warns public pensions are likely to achieve 4% returns on their assets, or worse. If Bridgewater is right, that means 85% of public pension funds will be going bankrupt in three decades.
Bridgewater came to these conclusions by stress testing the nation's public pension plans, much the way banks need to be evaluated on what could happen given a wide range out outcomes.
Many pension observers make the claim pensions will achieve 7% to 8% returns. But even if that assumption is correct, which is unlikely, public pensions are looking at a 20% shortfall, Bridgewater says. A 4% return is much more likely, the firm says.
Bridgewater set up a sophisticated model to simulate many of the possible market environments to see how they would affect public pension's resources. In 20% of those scenarios, public pensions run out of money in 20 years. And in 80% of the scenarios, public pensions run out of money within 50 years, Bridgewater says.
Massive Number of Municipal Bankruptcies on Horizon
I wonder what Bridgewater's model would predict starting with losses for the next seven to ten years, because that is what I think is highly likely.
Given the only way to shed pension obligations is bankruptcy, one hell of a lot of municipal bankruptcies are on the horizon unless some other legal maneuver is found.
Detroit may be just the first of many cities and states to face financial problems due to unfunded pension obligations.
If I recall correctly, I’ve heard that pension and retirement obligations are not accounted for as liabilities according to their financial reporting. Anybody who is a CPA or financial manager, please let us know if that’s true. Because if that’s true, it means that cities and states are not correctly setting aside funds now to meet the obligations later. And that they are getting away with it, if they are not required to report these as liabilities on their financial reports.
I’m not quite as pessimistic as Shedlock. My analysis indicates approximate 3% returns over the next 8-10 years followed by returns averaging around 7% for twenty years or so after that.
There will be adjustments made to most pensions, but I doubt 80% will “fail”.
Newer employees will pay more into the funds, and payouts will be adjusted down. The worst of it will be the howling from the above-mentioned players.
Not mine....because we are one of the half dozen or less nationwide that are funded fully.
Reasonable and prudent management combined with cooperative forward looking actions by the police union and legislators. Hard to believe it but there actually used to be responsible legislators.
Now we have to fight them to keep them from raiding our plan to spend the money on their mistakes elsewhere.
It helps that we do not have crazy benefit like retire at 50% after twenty and pain medical (not that I didn’t wish for such fantasies to come true) but reasonableness makes reality much more palatable.
Get ready of the raids.
Truly, you have been promised the raids.
Already workers in Germany are balking at working longer in order to allow workers in Greece to retire earlier than them
Workers across the US will be faced with much the same choice. Jurisdictions will increasingly reach into general funds, to supplement unfunded liabilities for retired workers’ retirements, quite plush ones compared to most private workers’ arrangements.
When a town needs more police today, it will claim it is unable to afford them, because it pays so much to the retired officers, who often retire at age 55 or younger, have lucrative 2nd career in or out of government.
Those retirees have rich lobbies. They hand out huge campaign donations to city council, county supervisor, state legislator candidates.
Politicians at all levels over promised these workers years ago, and have left current taxpayers “holding the bag” so to speak.
Current taxpayers get to pay for these local promises, in addition to federal promises for social security, medicare and Medicaid, not to mention Obamacare.
Eventually American citizens will simply be unable to afford all the promises, political opinions and sides notwithstanding.
This sad situation was ONE of the main reasons for the Tea Party movement, as I recall.
I being serious for the moment. does anyone really believe the government is not going to seize all pensions in just a few years?
I think the legislation is already written (much like Obamacare was), but the left is waiting to see how bad the bloodbath will be in November. If the Tea Party does in 2014 what it did in 2010 the plan will remain shelved because they will not have the power. If the Landrieus, Hagans and Grahams survive in 2014, and Hillary wins the presidency in 2016, all pensions (public and private) will be “managed” by the federal government by 2018. It’ll be for our own good, dontcha know, after yet another “Big Financial Crisis” hits.
Governments are required to report the pension liabilities but do not have to accrue for them. If they did, they would blow their budgets.
One of the problems with public pensions is that if they are not managed well and funding is enforced, you get Detroit. As screwed up as New York is everywhere else, its public pension is one of the best funded in the country. It requires that its municipalities fund it properly. The problems with New York’s pension are that the expected returns are total bs at 7.5% per year, pension padding (where workers grab exorbitant overtime in their last three years of work to raise their final average salary which is what their pension is based on, and that most workers do not contribute to their pension, but the taxpayers do.
Defined benefit pensions have to be phased out because they are not sustainable by municipalities. The politicians make unsustainable deals with the unions that the taxpayers are on the hook for, but yet the taxpayer is not at the negotiating table when the contracts are signed.
Of course they will. There are trillions of dollars in 401ks, IRAs and public and private pensions. How else will the government pay for amnesty and Obamacare and social security and Medicaid and all the other unconstitutional spending?
Thanks for the info.
So, if they don’t accrue the expense for the pension liabilities, then they will be under funded. But, the point at which the SHTF will be years from now, so those currently managing the funds, or those in elective office overseeing all of this, don’t have to make any tough decisions today about this.
You underestimate the ability of politicians at all levels to cook the books. How are you enjoying your ZERO percent interest on your savings right now? How are you enjoying the MINIMAL inflation rate they say we are experiencing? And, if you look around, the list goes on.
Pension law must be amended to state no one can receive a pension until 70 years of age. Eliminate 20 year work pensions and retiring at 40 Years old. This is financial suicide exactly what we are experiencing NOW!
Paying the pension bill and accruing for it are two different things. I can only speak for NY in that the municipality’s bill has to be paid each year. Another problem is that the state allows the municipality to borrow for its pension bill at a rate higher than what the free market would bear and now the municipality is essentially borrowing for its annual operating costs. With respect to Detroit, the pension fund was never properly managed and the bills are out of control and were never paid properly so that the fund is fully funded. This is a recipe for disaster. Detroit has no growing tax base and there are unfunded liabilities which will never be fully funded. Politicians constantly kick the can down the road and never deal with the 800lb gorilla in the room. No one has the political will to deal with the issues.
“You underestimate the ability of politicians at all levels to cook the books. How are you enjoying your ZERO percent interest on your savings right now? How are you enjoying the MINIMAL inflation rate they say we are experiencing? And, if you look around, the list goes on. “
I’m doing the best I can to stay afloat. And to share the message of how bloated big government will sink the ship of our children and grandchildren.
I’m a big advocate for cutting the pensions and benefits of public sector retirees NOW. Not phased in, or in the future. NOW.
Yes. The government will seize private pension funds soon. They will loot any actual savings and downgrade payments just as they do for Medicaid.
what bothers me(I mean besides the fact the government will take my pension), is that the whole class envy thing that the left and Obama use comes into play here.
I have an uncle who started working for at&t in the 50’s.
it was when it was all white and mostly male.
he retired about 20 years ago with a stupendous pension.
the Marxists hate that and would love to take it away.
The Post Office might be the only organization to survive. Whoever demanded that the post office ensure their pension funds are funded are brilliant. I think very agency and company should be required to put money away for future pensions. If they have them then they are required to provide lifetime payments. If they don’t want to then stop all pensions for those being hired tomorrow. If not shut up and pay the dang money you promised. It is NOT the fault of the workers who did what they were supposed to do. I wish conservatives would stop blaming the workers on this issue.
Your uncle retired with money to spend how he saw fit.
The Marxists want to control us from cradle to grave.
Obamacare was a huge step in that direction.