Category Archives: Pensions

Social Security Steams Closer to Crisis, by Brian McGlinchey

Don’t look now, but Social Security is rapidly going broke. It’s going to take big tax hikes and benefit cuts to make it fiscally healthy. Don’t worry though, most of that will fall on posterity. From Brian McGlinchy at starkrealities.substack.com:

As Democrats push new entitlement programs, the biggest one is set to run aground

At a time when President Biden and congressional Democrats are pushing to expand the breadth of entitlements to include free preschool and subsidized child care, little attention is given to the fact that the country’s biggest existing entitlement program—Social Security—is a financial wreck.

The program’s payouts have exceeded revenue since 2010, but the recent past is nowhere near as grim as the future. According to the latest annual report by Social Security’s trustees, the gap between promised benefits and future payroll tax revenue has reached a staggering $59.8 trillion.

That gap is $6.8 trillion larger than it was just one year earlier. The biggest driver of that move wasn’t Covid-19, but rather a lowering of expected fertility over the coming decades.

That trend has already been steadily undermining the program. In 1960, for every Social Security beneficiary there were 5.1 workers adding payroll taxes to the system. That ratio has shrunk to 2.7 and is expected to reach 2.2 by 2036.

The Social Security trust fund is projected to run out in 2033. Absent other action, that would trigger a 20% cut for everyone receiving benefits at that time.

While 2033 is just 12 years from now, it’s hard to predict when an appropriate sense of crisis will actually take hold in Washington. We can, however, speculate on what measures the inevitable reckoning with the program’s insolvency could include.

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Pritzker Administration sloughs off Illinois pension liabilities passing $500 billion mark, dissembles on pension crisis again, by Mark Glennon

The taxpayers of Illinois are buried under the pensions that have been granted to public employees. From Mark Glennon at wirepoints.org:

There’s a lesson here not only about Illinois pensions but about how easily the press will let Gov. J.B. Pritzker thumb his nose at a crisis.

We reported Wednesday that the total unfunded liability for Illinois state and local pensions passed the $500 billion mark. That includes pensioner healthcare liabilities, which are constitutionally guarantied just like pensions. It is based on numbers from Moody’s Investor Services which uses assumptions comparable to those used in the private sector and are less optimistic than those the state uses. Read Wirepoints Special Report: Illinois pension shortfall surpasses $500 billion, average debt burden now $110,000 per household

Greg Hinz at Crain’s asked Gov. J.B. Pritzker’s office for a response.

“Pritzker’s office is pushing back on the notion that he’s done too little,” wrote Hinz. “Steps such as discounted buyouts of some pensions have ‘begun to bend the curve,’ with the percentage of total spending that goes to pension now flattening, a spokeswoman says in an email.”

Nonsense. Pritzker has done nothing significant whatsoever to fix pensions and it is particularly dishonest to cite pension buyouts as an example of progress.

Pritzker has long been boasting about pension buyouts but forever refuses to provide any support or analysis showing that buyouts would have any meaningful effect. We and others have written about it repeatedly.

  • In 2019 he told The Economic Club of Chicago that some study says buyouts will save “billions and billions,” perhaps $25 billion. But he has never produced that study or anything else to support the claim, and the state’s bond documents said something very different in the debt offering made just prior to that claim. Those documents said just 818 workers and retirees who are eligible for either of the state’s buyout programs had applied for one. That’s less than 2.3%, not 20% as Pritzker told the Economic Club. The documents further said, “The State is unable to quantify the amount or timing of any [reduction in pension liabilities] at this time.” In other words, Pritzker brags about savings to the public but the state says something different when the penalty would be securities fraud.

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Status of Social Security and the Trust Fund, Fiscal 2021: Beware of Vicious Dog, by Wolf Richter

The Social Security Trust Fund is not in good shape, and if inflation picks up from where it is, it will eviscerate both the fund but the expectations of millions of its beneficiaries. From Wolf Richter at wolfstreet.com:

Biggest COLA since 1982 already eaten up by inflation.

The Social Security Trust Fund – the Old-Age and Survivors Insurance (OASI) Trust Fund – closed the fiscal year 2021 at the end of September with a balance of $2.76 trillion, down by 2.0% from a year earlier ($2.81 trillion), according to figures released by the Social Security Administration. After large increases in the prior decade, this was the second annual decline of the Trust Fund since 1990; the first occurred in 2018 (-0.8%).

The Disability Insurance Trust Fund is by law a separate entity from the OASI Trust Fund, and is not part of this discussion here.

The OASI Trust Fund invests exclusively in Treasury securities. At the end of the fiscal year, it held $2.73 trillion in interest-bearing long-term special issue Treasury securities and $22 billion in a short-term cash management security, called “certificates of indebtedness.” These securities are not traded, and so their value doesn’t change from hour to hour, and they don’t need to be marked to market because the Trust Fund purchases them at face value, and the US Treasury redeems them at face value.

By investing on autopilot in Treasury securities that are not exposed to the market, the Trust Fund follows an ultra-low-risk strategy and operates with ultra-low administrative expenses, amounting to just 0.14% of the assets in the fund.

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The Insecurity of Social Security, by Lance Roberts

If you’re counting on Social Security to fund a long retirement, don’t. From Lance Roberts at realinvestmentadvice.com:

The latest annual report from the Social Security Trustees showed the insecurity of social security.

According to the July 2021 snapshot from the Social Security Administration, nearly 70-million people receive a monthly benefit check, of which 51.3 million are over the age of 65.

Social Security Insecurity, #MacroView: The Insecurity Of Social Security

Social Security provides the majority of income to most elderly Americans. The system provides at least 50 percent of incomes for about half of seniors. For roughly 1 in 4 seniors, it provides at least 90 percent of total incomes. But, that dependency ratio is directly tied to the financial insolvency of the vast majority of Americans. According to a CNBC report:

“Morning Consult found that nearly 18% of adults with an annual income of $50,000 or less have no savings, while some 34% have enough to cover just three months of expenses. Another 11% would deplete savings within six months. Only 10% of that income group has more than a year’s worth of cash.

Higher-income households are only somewhat better prepared, the survey found. Among those with annual incomes of $50,000 to $100,000, about 18% said they have between three months and six months of savings. About 25% said their cash would last less than three months, and 6% had set aside nothing at all. None of those questioned in that income group had more than a year’s worth of savings.”

Social Security Insecurity, #MacroView: The Insecurity Of Social Security

Such is a huge problem that will impact boomers in retirement.

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185 Pensions Got Their $86 Billion Piece of the COVID-19 Rescue “Pie”, from Birch Gold

Incompetence is the sure ticket for getting money from the Biden government. From birchgold.com:

Both private and public pensions have been having major funding issues and struggling to get a good ROI for a number of years.

So it’s no surprise that any sort of economic relief package presented to Congress would include funds for pensions. Especially since a “bailout” culture seems to have taken root in America.

The recent $1.9 trillion COVID-19 stimulus bill approved by the House is no exception to this “bailout culture.”

The New York Times reported that it contains $86 billion for struggling pensions:

The $86 billion is a taxpayer bailout for about 185 union pension plans that are so close to collapse that without the rescue, more than a million retired truck drivers, retail clerks, builders and others could be forced to forgo retirement income.

The article continued: “The trend predated the pandemic and is a result of fading unions, serial bankruptcies and the misplaced hope that investment income would foot most of the bill so that employers and workers wouldn’t have to.”

Leaving aside the fact that “hope” is shaky ground to base any economic decision on, this appears as another signal that pensions are going the way of the dodo bird.

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Consequences – They are unavoidable, by Bill Blain

Artificially suppressed interest rates and low birth rates have their consequences. From Bill Blain at morningporridge.com:

“We may choose our paths, but we can’t choose the consequences that come with them.”

This morning: Consequences are unavoidable. Pension savers are crushed by interest rate repression and the changing demographics of Covid, while the deluge of debt fuelled by low rates does nothing for economic sustainability.

One of the things any investor must understand is that everything has consequences. There are always consequences. They are unavoidable. 13 years of monetary experimentation by central banks has profound consequences. For everybody.

A few days ago my colleague, Mike Hollings, CIO of Shard, and I put together a vlog on shifting market conditions. I’ve known Mike for decades, and we both agree it’s the consequences of the last 13 years of monetary distortion (since the beginning of the Global Financial Crisis that began in 2007) that present the greatest long-term challenges for markets. (You should be able to see some highlights of our chat in the latest Shard Lite-Bite video later today.)

One of the issues we covered was the effect of repressed interest rates on savings – and how challenging these will be to the expectations of current pension plans. Sure enough, bang on time, there are two stories in the market this morning that throw our concerns into stark reality.

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An Exceptionally Sad Day For Illinois, by Mark Glennon

Illinois has been run by the Democrats forever, but according to its Democrat governor, it’s the Republicans fault the state is the deepest and darkest of deep, dark fiscal black holes. From Mark Glennon at wirepoints.cog:

Despair, as best as we can tell, is the emotion growing most rapidly in Illinois, and yesterday, February 17, was particularly dispiriting.

Three stories told those who believe Illinois is on the wrong track that the state’s political establishment cannot care less about their concerns. Disdain and even hatred about those concerns prevail.

First was Gov. JB Pritzker’s State of the State and Budget Address. It’s not just that it was more of the same refusal to undertake the major reforms needed to solve the fiscal crisis, which we are writing about separately. It was the extreme rhetoric Pritzker used to attack a political obstacle that doesn’t exist.

That political obstacle, Pritzker said, is Illinois Republicans. Their purposeful destructiveness has undermined the mission of putting Illinois on the right path, Pritzker would have us believe. “In essence, they eliminated the fire department, burnt down the house, and poured gas on the flames — and now they’re asking why we’re not doing more to prevent fires,” he said. “In a normal year, I might have more patience for their hypocrisy. But this is not a normal year,” he added.

In truth, however, Republicans have been unable to pass or block a single thing of any consequence during the Pritzker Administration because Pritzker’s party has held a supermajority in the General Assembly for years. Nor do Republicans hold even one statewide office. He has faced no political obstacle from those he excoriated.

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What Happens When All Our Wealth Is Gone? by Dennis Miller

Governments have often impoverished their citizenry. From Dennis Miller at theburningplatform.com:

When I was dating my wife Jo, her 10-year-old daughter Holly learned I was a glutton for chocolate chip cookies.

This adorable little lady grinned, loaded in the chocolate chips and baked an entire batch by herself. As she put the cookies on the cooling rack, I began to devour them. They were soft, moist and yummy!

Holly yelled, “Mom he is eating them faster than I can bake them.” Not surprising, I soon gained 25 pounds.

Today Holly owns a small business. Over the holidays she complained. Much like Dennis and chocolate chips, our wealth is being gobbled up faster than it can be created. She is spot on.

The Big Heist

On 1/1/2000 10-year treasuries were paying over 6% interest. 21 years later, they paid .93%. They are guaranteed wealth destroyers.

The government spends recklessly, bails out banks and debt soars.

Bank borrow and lend cheap money; commercial loans have skyrocketed. Untold billions went to binge-borrowing corporations buying back their stock to hype the market price, yet their debts remain.

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Has Joe Biden Lost His Mind? by MN Gordon

Social Security is a lost cause but the Biden administration thinks it can “reform” it. From MN Gordon at economicprism.com:

Are you an accidental dependent of Washington?  Many people are.  And many people don’t even realize it.

Systems of elaborate folly have been erected with the most impossible of promises.  That wealth can be created without production.  That stimmy checks can be paid without taxes.  That everyone can get free solar power at the expense of their neighbors.

Central to these promises are the central government and central planning authorities.  They promise ease and comfort and, in return, they make you a dependent.  They promise a secure retirement, and free drugs, while running a scheme that’s beyond Charles Ponzi’s wildest dreams.

Social Security, no doubt, is a tempting idea.  The government confiscates part of your paycheck every two weeks.  Then, in return, and after putting in 45 years, your retirement is subsidized.  You can enjoy your golden years in comfort.

According to Rachel Greszler, research fellow at the Heritage Foundation:

“[Social Security’s] America’s favorite entitlement program, and part of the reason it’s so popular is it’s not solvent.”

Indeed, the most popular programs are those that promise people they’ll get out more than they put in.  The promise is so appealing people trust that by hook or crook their government leaders will deliver.  Alas, those counting on Social Security may suffer a grave disappointment.

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Why Los Angeles Is In Trouble – Average Pay For 20,000 Highly Compensated City Employees Nears $150,000, by Adam Andrzejewski

Any government that pays tree trimmers 200 grand deserves to go bankrupt, and the voters who voted for the clowns signing the checks deserve their misery. From Adam Andrzejewski at forbes.com:

The Los Angeles area comprises the Hollywood movie studios, Beverly Hills, Muscle Beach, and a previously booming economy that trailed only New York City and Tokyo.

The city is also home to powerful politicians such as U.S. Rep. Adam Schiff, Chairman of House Judiciary Committee; U.S. Rep. Maxine Waters, Chief Deputy Whip; and Mayor Eric Garcetti, the National Co-Chairman of Biden for President.

However, LA itself is in trouble. Whenever we open the books, the city consistently ranks among the worst tax and spend offenders.

Last year, there were 20,000 highly compensated city employees whose average pay exceeded $147,000 and cost taxpayers $3 billion. All of them made more than $100,000 and nearly 2,000 out-earned California Governor Gavin Newsom ($202,000).

Our auditors at OpenTheBooks.com found painters making $113,943; “tree surgeons” trimming $207,058; police officers with an arresting $325,942; legislative analysts earning $399,631; firefighters hosing down $486,674; and “harbor boat pilots” swimming in $515,000.

Mayor’s Office – Mayor Garcetti cost taxpayers $269,375 in salary – $67,000 more than Gov. Newsom. Seven “deputy mayors” earned $1.44 million with individual salaries each exceeding $200,000. Chief of staff, Ann Guerrero, made $232,205– compensation out earning the mayor of Chicago ($216,000).

Garcetti has an executive staff larger than 48 of the 50 state governors. The mayor employed 261 people last year for $20+ million in salary cost.

While permanent staff enjoy handsome salaries, Garcetti also relies on unpaid labor. Although intern positions are available in dozens of departments working on issues such as homelessness, sustainability, and immigration, those internships are not compensated.

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