Category Archives: Pensions

Social Security requires a bailout that’s 60x greater than the 2008 emergency bank bailout, by Simon Black

By official measures Social Security is going broke, and those measures incorporate overly optimistic assumptions. From Simon Black at sovereignman.com:

A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning: Social Security is running out of money.

Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news…

… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone.

But that didn’t happen.

The story was hardly picked up.

It’s astonishing how little attention this issue receives considering it will end up being one of the biggest financial crises in US history.

That’s not hyperbole either– the numbers are very clear.

The US government itself calculates that the long-term Social Security shortfall exceeds $46 TRILLION.

In other words, in order to be able to pay the benefits they’ve promised, Social Security needs a $46 trillion bailout.

Fat chance.

That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy.

Moreover, it’s nearly SIXTY times the size of the bailout that the banking system received back in 2008.

So this is a pretty big deal.

More importantly, even though the Social Security Trustees acknowledge that the fund is running out of money, their projections are still wildly optimistic.

In order to build their long-term financial models, Social Security’s administrators have to make certain assumptions about the future.

What will interest rates be in the future?
What will the population growth rate be?
How high (or low) will inflation be?

These variables can dramatically impact the outcome for Social Security.

To continue reading: Social Security requires a bailout that’s 60x greater than the 2008 emergency bank bailout

 

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What Ponzi Scheme? Public Pensions Average 0.6% Return In 2016 Despite 7.6% Assumption, by Tyler Burden

Send not to know for whom the bell tolls, it tolls for state and local pension funds. From Tyler Durden at zerohedge.com:

We’ve frequently argued that public pension funds in the U.S. are nothing more than thinly-veiled ponzi schemes with their ridiculously high return assumptions specifically intended to artificially minimize the present value of future retiree payment obligations and thus also minimize required annual contributions from taxpayers…all while actual, if immediately intangible, underfunded liabilities continue to surge. 

As evidence of that assertion, we present to you the latest public pension analysis from the Center for Retirement Research at Boston College.  As part of their study, Boston College reviewed 170 public pension plans in the U.S. and found that their average 2016 return was an abysmal 0.6% compared to an average assumed return of 7.6%.

Meanwhile, per the chart below, the average return for the past 15 years has also been well below discount rate assumptions, at just 5.95%.

All of which, as we stated above, continues to result in surging liabilities and collapsing funding ratios.

All of which, as we stated above, continues to result in surging liabilities and collapsing funding ratios.

But, perhaps the most telling sign of the massive ponzi scheme being perpetrated on American retirees is the following chart which shows that net cash flows have become increasingly negative, as a percentage of assets, as annual cash benefit payments continue to exceed cash contributions.

To continue reading: What Ponzi Scheme? Public Pensions Average 0.6% Return In 2016 Despite 7.6% Assumption

Buying Illinois Debt – BOLD or Bad? by Dennis Miller

Is State of Illinois municipal debt, which outyields all other municipal debt except Puerto Rico’s, a good deal? A bad idea, says SLL. From Dennis Miller at theburningplatform.com:

The Illinois debt saga continues. The state operated without a budget since 2015. In June, just before their fiscal year end, both S&P and Moody’s downgraded Illinois’ credit rating to one level above “junk bond” status.

Moody’s said:

“Legislative gridlock has sidetracked efforts not only to address pension needs but also to achieve fiscal balance, allowing a backlog of bills to approach $15 billion, or about 40% of the state’s operating budget. During the past year of fruitless negotiations and partisan wrangling, fundamental credit challenges have intensified enough to warrant a downgrade, regardless of whether a fiscal compromise is reached in an extended session.

…By our calculation, the state’s unfunded pension liability for its five major plans in aggregate grew 25% in the year ended June 30, 2016, to $251 billion.

…After eight downgrades in as many years, Illinois’ rating is an outlier among states, most of which are rated at least eight notches higher.”

Fox News reports the Governor agreed.

“We’re like a banana republic,” Rauner said earlier this month, after the General Assembly failed, yet again, to pass a budget package by the regular session deadline. “We can’t manage our money.”

Illinois Comptroller Susana Mendoza chimes in:

“My Office has very serious concerns that, …the State of Illinois will no longer be able to guarantee timely and predictable payments in a number of areas that we have to date managed (albeit with extreme difficulty)…

We are effectively hemorrhaging money as the state’s spending obligations have exceeded receipts by an average of over $600 million per month over the past year.”

A political soap opera

Bloomberg follows the events and reported “…Yields on the state’s 10-year bonds soared (Emphasis mine) to 4.8%. …That’s the highest yield of all 22 states Bloomberg tracks.”

On Sunday July 2nd, the Illinois House approved a budget, sending it to the governor who promptly vetoed the bill. It includes a 32% income tax increase. He said, “This tax hike will solve none of our problems. In fact, in the long run, it will make our problems worse, not better.”

To continue reading: Buying Illinois Debt – BOLD or Bad?

Why Illinois Is In Trouble – 63,000 Public Employees With $100,000+ Salaries Cost Taxpayers $10B, by Adam Andrzejewski

If you think that Illinois, under severe financial pressure, is laboring mightily to cut unnecessary expenses like huge salaries for bureaucrats, you’re wrong. From Adam Andrzejewski at forbes.com: 

OpenTheBooks.com

The ‘Big Dogs’ of local government in Illinois.

Illinois is broke and continues to flirt with junk bond status. But the state’s financial woes aren’t stopping 63,000 government employees from bringing home six-figure salaries and higher.

Whenever we open the books, Illinois is consistently one of the worst offenders. Recently, we found auto pound supervisors in Chicago making $144,453; nurses at state corrections earning up to $254,781; junior college presidents making $465,420; university doctors earning $1.6 million; and 84 small-town “managers” out-earning every U.S. governor.

Using our interactive mapping tool, quickly review (by ZIP code) the 63,000 Illinois public employees who earn more than $100,000 and cost taxpayers $10 billion. Just click a pin and scroll down to see the results rendered in the chart beneath the map.

Here are a few examples of what you’ll uncover:

  • 20,295 teachers and school administrators – including superintendents Joyce Carmine ($398,229) at Park Forest School District 63, Troy Paraday ($384,138) at Calumet City School District 155, and Jon Nebor ($377,409) at Indian Springs School District 109. Four of the top five salaries are in the south suburbs – not the affluent north shore.
  • 10,676 rank-and-file workers and managers in Chicago – including $216,200 for embattled Mayor Rahm Emanuel (D) and $400,000 for Ginger Evans, Commissioner of Aviation – including a $100,000 bonus. Timothy Walter, a deputy police chief, made $240,917 – that’s $146,860 in overtime on top of his $94,056 base salary. Ramona Perkins, a police communications operator, pulled down $121,318 in overtime while making $196,726!
  • 9,567 college and university employees – including the southern Illinois junior college power couple Dale Chapman ($465,420) and Linda Terrill Chapman ($217,290). The pair combined for a $682,000 income at Lewis and Clark Community College. Fady Toufic Charbel ($1.58 million) and Konstantin Slavin ($1.04 million) are million-dollar doctors at the University of Illinois at Chicago.

To continue reading: Why Illinois Is In Trouble – 63,000 Public Employees With $100,000+ Salaries Cost Taxpayers $10B

Social Security Will Be Paying Out More Than It Receives In Just Five Years, by Mac Slavo

One interesting fact: Social Security taxes have been raised more than twenty times since the program’s inception and it’s still going broke. There’s a lesson there for those who think the solution to governments’ fiscal woes is raising taxes. From Mac Slavo at shtfplan.com:

When social security was first implemented in the 1930’s, America was a very different country. Especially in regards to demographics. The average life expectancy was roughly 18 years younger than it is now, and birth rates were a bit higher than they are now. By the 1950’s, the fertility rate was twice as high as it is in the 21st century.

In other words, for the first few decades, social security seemed very sustainable. Most people would only live long enough to benefit from it for a few years, and there was an abundance of young workers who could pay into the system. Those days are long gone. As birth rates plummet and people live longer, (which otherwise should be considered a positive development) social security’s future is looking more and more bleak.

No matter how you slice it, it doesn’t seem possible to keep social security funded. In fact, social security is going to start paying out more money than it receives in just a few short years. It may even be insolvent before the baby boomer generation dies off.

According to the Social Security Board of Trustees, the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be depleted in 2034.

When this happens, only 77 percent of benefits will be payable. That estimate is no change from last year’s estimate.

In addition, the Disability Insurance trust fund will be depleted in 2028, which is an improvement from last year’s estimate of 2023. Once that fund is depleted, 93 percent of benefits will be paid.

Right now, Social Security continues to take in through revenue more than it pays it through benefits, which is expected to continue until 2022. Once Social Security begins to pay out more than it takes in, it will be forced to liquidate the assets held by the trust funds.

In 2016, Social Security generated $957 billion in income. It only paid out $922 billion including $911 billion in benefits to 61 million beneficiaries.

To continue reading: Social Security Will Be Paying Out More Than It Receives In Just Five Years

 

America’s Pension Bomb: Illinois Is Just the Start, by Tyler Durden

There are a lot of pension promises out there that aren’t going to be kept. From Tyler Durden at zerohedge.com:

We’ve written quite a bit over the past couple of months about the pending financial crisis in Illinois which will inevitability result in the state’s debt being downgraded to “junk” at some point in the near future (here is our latest from just this morning: “From Horrific To Catastrophic”: Court Ruling Sends Illinois Into Financial Abyss).

Unfortunately, the state of Illinois doesn’t have a monopoly on ignorant politicians…they’re everywhere.  And, since the end of World War II, those ignorant politicians have been promising American Baby Boomers more and more entitlements while never collecting nearly enough money to cover them all…it’s all been a massive state-sponsored scam.

As we’ve noted frequently before, some of the largest of the many entitlement ‘scams’ in this country are America’s public pension funds.  Up until now, these public pension have been covered by stealing money set aside for future generations to cover current claims…it’s a ponzi scheme of epic proportions…$5-$8 trillion to be exact.

Of course, the problem with ponzi schemes is that eventually you get to the point where the ponzi is so large that you can’t possibly steal enough money from new entrants to cover redemptions from those trying to exit…and, with a tidal wave of baby boomers about to pass into their retirement years, we suspect that America’s epic ponzi is on the verge of being exposed for the world to see.

And when the ponzi dominoes start to fall, Bloomberg has provided this helpful map to illustrate who will succumb first…

To continue reading: America’s Pension Bomb: Illinois Is Just the Start

The U.S. Economy is a Perverted, Neo-Feudal, Rent-Seeking Abomination, by Michael Krieger

From GE funding share buybacks (which supports the price of executive stock options) instead of its underfunded pension, to trucking companies that indenture their drivers, it’s a nasty world out there, and it’s getting nastier. From Michael Krieger at libertyblitzkrieg.com:

The banker bailouts of the 2008/09 period changed my life forever. I was working on Wall Street at the time, and the way in which the government rallied around the financial institutions that torched the world and left its victims in the dust threw my entire delusional worldview into disarray. Prior to that, I had bought into the absurd assumption that I was financially successful at a young age primarily because I was hard-working and talented. The ensuing bailouts and the government’s emphasis on obsessively rescuing some of the most degenerate people in our society made me realize once and for all how completely rigged and sleazy the U.S. economy really is. As you might expect, it only got worse under Obama’s oligarch-coddling policies and will surely continue to deteriorate under Trump (Goldman Sachs is not your friend).

Ever since I left my cushy financial services job to do the challenging and often draining work of chronicling our ongoing crime scene, I’ve spent the vast majority of my free time trying to further educate myself on exactly how this system works. What I’ve discovered over and over again is that it is far more abusive than even I imagined.

Today’s post highlights two important articles that came to my attention over the past couple of days. Both are extremely disturbing, and both should be seen as completely unacceptable in a remotely ethical civilization (which we are not).

First, here’s a short excerpt from a recent Bloomberg article highlighting GE’s pension shortfall, and how it’s gotten worse as executives focused on share-buybacks as opposed to funding the pension.

It’s a problem that Jeffrey Immelt largely ignored as he tried to appease General Electric Co.’s most vocal shareholders.

But it might end up being one of the costliest for John Flannery, GE’s newly anointed CEO, to fix.

At $31 billion, GE’s pension shortfall is the biggest among S&P 500 companies and 50 percent greater than any other corporation in the U.S. It’s a deficit that has swelled in recent years as Immelt spent more than $45 billion on share buybacks to win over Wall Street and pacify activists like Nelson Peltz.

To continue reading: The U.S. Economy is a Perverted, Neo-Feudal, Rent-Seeking Abomination