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The Suddenly Poor Life: Millions Will Lose Their Pensions

Uglytruth

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I'm receiving a pension from a major international Chemical company.
They have a plan called the rule of 85. When your age and yrs. of service adds up to 85 you can receive your Pension.
Once I reach the age to collect social security the pension is offset by the amount of SS I collect, and my total income stays the same.
If inflation will stays under control, I should be ok.
What happens if you leave? Do you loose it? What happens if you retire early due to health or something unforseen? Seems like just another form of golden handcuffs to me. Who says the company is not bought out, pillaged & pays pennies in the dollar if anything?

Am I looking at this right?
Hired Age..... Work yrs..... Retirement age............ Total
20...................32.5.....................52.5..........................85
30...................27.5.....................57.5..........................85
40...................22.5.....................62.5..........................85
50...................17.5.....................67.5..........................85 (but it's already going into a SS reduction)
60...................12.5.....................72.5..........................85
70.....................7.5.....................77.5..........................85

The problem is we never know when our time is up. Sounds great if you lived to 100. Sounds pretty bad if you die at 65. Does your spouse or estate get the balance of your account if you pass during your working years or even shortly after retirement?
 

brosil

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What happens if you leave? Do you loose it? What happens if you retire early due to health or something unforseen? Seems like just another form of golden handcuffs to me. Who says the company is not bought out, pillaged & pays pennies in the dollar if anything?

Am I looking at this right?
Hired Age..... Work yrs..... Retirement age............ Total
20...................32.5.....................52.5..........................85
30...................27.5.....................57.5..........................85
40...................22.5.....................62.5..........................85
50...................17.5.....................67.5..........................85 (but it's already going into a SS reduction)
60...................12.5.....................72.5..........................85
70.....................7.5.....................77.5..........................85

The problem is we never know when our time is up. Sounds great if you lived to 100. Sounds pretty bad if you die at 65. Does your spouse or estate get the balance of your account if you pass during your working years or even shortly after retirement?
Realistically, how many people hire in anywhere at 60. That's a nice deal for a good 20 yr. old. It's not bad at 40.
 

Uglytruth

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Realistically, how many people hire in anywhere at 60. That's a nice deal for a good 20 yr. old. It's not bad at 40.
I agree, but younger workers today have to work until 68 or 70 for SS (that probable will not be there or reduced to nothing). Older are dependable so they will get hired, but then health becomes an issue.
 

edsl48

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Jeremy Gold, Actuary Who Warned of Pension Crisis, Dies at 75

Jeremy Gold in 2015. He questioned the conventional wisdom on financing pensions and embarked on a mission “to save my profession.”CreditCole Wilson for The New York Times
By Mary Williams Walsh
  • July 13, 2018
Jeremy Gold, an actuary who more than 25 years ago warned of the financial debacles now slowly playing out among the cities and states that sponsor pension plans for their teachers, police officers, bus drivers and other workers, died on July 6 in Manhattan. He was 75.

The cause was myelodysplastic syndrome and leukemia, his son, Jonathan, said.

In 1985, Mr. Gold became one of the first American actuaries to work on Wall Street, straying from the profession’s typical career track in insurance and consulting.

It was the heyday of the corporate raid, when high rollers like Carl Icahn and T. Boone Pickens were buying up companies, firing the managers, turning everything upside down and reveling in the shareholder value they claimed to have created.

Often, the raiders went after companies with pension funds, which happened to be Mr. Gold’s métier. They said the funds held far more money than they needed, grabbed what they said was the surplus and used it to finance their takeovers. When the dust settled, the money was gone, and workers’ hopes for a decent retirement were dashed.

The raids inspired books, movies, Broadway productions like Ayad Akhtar’s “Junk” and, eventually, a federal law slapping a punitive tax on any raider who looted a pension fund again.

But for Mr. Gold, they raised big questions about the advice actuaries gave employers on how to run their pension plans.

Why did the raiders keep finding overstuffed pensions to exploit? Could actuarial practices be making employers vulnerable? What if it was not just a few wrong numbers here and there, but a bedrock flaw in the actuarial standards that could lead to a systemic disaster?

Mr. Gold eventually concluded that the standards were indeed dangerously flawed, and embarked on a 30-year mission, as he put it, “to save my profession.”

Pension mishaps, he knew, would be devastating as baby boomers aged and retired, because the amounts of money involved would be vast. Much like lawyers and accountants, actuaries have a professional duty to protect the public and to serve the greater good. If instead they were putting their clients in harm’s way, even unintentionally, he thought, the public would eventually catch on, actuaries would be blamed, and the whole profession could go down in a cascade of ignominy and lawsuits.

The Artist Is Not Present
If the problem lay in weak actuarial standards, he concluded, the solution would be tighter standards.

More than 30 years later, the tightened standards are still mostly on the drawing board, and change has come too slowly to avoid painful reckonings in places like Detroit, Puerto Rico, Stockton, Calif., and perhaps, soon, Chicago — or to prevent the looming collapse of big pension plans for retired Teamsters and coal miners.

But the fact that stricter standards are being considered at all is testament to Mr. Gold’s conviction that actuarial science was broken, and his refusal to stop saying so.

“Within the actuarial profession, Jeremy has done more than anyone to move this forward,” said Ed Bartholomew, a former chief financial officer of the Inter-American Development Bank, who led a reform of the bank’s pension management following the recent financial crisis.

Mr. Bartholomew, now an independent consultant, said he thought work on new actuarial standards was “going in the right direction.”
“For that,” he said, “I give credit to Jeremy, who has been pushing these ideas for 20 years.”

But even as Mr. Gold won converts, he antagonized many colleagues, who believed the traditional actuarial methods were sound and thought he was harming the profession’s credibility.

He also earned the enmity of union officials, who thought his campaign threatened their members’ benefits. In fact, Mr. Gold was a lifelong liberal Democrat, the son of high school English teachers who knew firsthand the value of traditional pensions.

He came to his understanding of the pitfalls in actuarial science during his work on Wall Street in the 1980s. It wasn’t just the corporate raids; the 1980s were also a time of groundbreaking theoretical advances in financial economics, a specialty that concentrates on trading, pricing, hedging and risk.

From his vantage point as the head of Morgan Stanley’s pension division, Mr. Gold could see the lessons of financial economics being applied to everything around him — except pensions.

Financial economists were concerned with accurately measuring the cost of transactions that would happen in the future. Actuaries were focused on estimating pension costs and then spreading out the cost as smoothly as possible over time. Their clients wanted slow, steady funding schedules that would pay for their workers’ benefits over the years without surging every time the markets soured or interest rates spiked.

That meant actuaries were not terribly concerned about up-to-the-minute asset values, or measuring pension obligations the way the markets would. Their numbers made sense to them, but not to anyone else. They often told clients to make bigger contributions than current market conditions called for, knowing it would result in excess funding, which would fill the hole later on when the markets changed.

That was why the raiders of the 1980s found troves of pension money that seemed to be just sitting there, waiting to be captured.

Confusion about actuarial numbers also helps explain why so many state and local governments promised valuable pensions without understanding how much it would cost to pay them.

In 1995 Mr. Gold applied to the doctoral program at the University of Pennsylvania’s Wharton School, saying he wanted to research how pension finance had come to be so muddled.

“I would look to the principles of modern finance for guidance in the design of a more rational pension finance of the future,” he wrote.

By the time he emerged with a doctorate in financial economics, the big stock run-up of the 1990s was ending and the rich pension surpluses of the 1980s had disappeared. The baby boomers were retiring, the markets were gyrating, companies were trying to get out of the pension business, and state and local pension plans were struggling.

Those conditions intensified the opposition to Mr. Gold’s calls for sweeping change, but they made him all the more certain that change was needed.

Mr. Gold was born in Brooklyn on Nov. 28, 1942, to Sarah and Edward Gold, and grew up on Manhattan’s Lower East Side. He was accepted at M.I.T. at 16 but flunked out after three years as a math major. He ultimately received a bachelor’s degree from Pace College (now Pace University). Before joining Morgan Stanley he worked at the consulting firms Alexander & Alexander and Buck Consultants.
His two marriages ended in divorce. In addition to his son, he is survived by a brother, Jonathan, and a granddaughter.
 

mtnman

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Slightly off topic, taking early retirement at 62 looks better everyday...
Heck, I retired at 55 with my IAM pension. This year I get a raise, my SS kicks in.
 

TLM

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What happens if you leave? Do you loose it? What happens if you retire early due to health or something unforseen? Seems like just another form of golden handcuffs to me. Who says the company is not bought out, pillaged & pays pennies in the dollar if anything?

Am I looking at this right?
Hired Age..... Work yrs..... Retirement age............ Total
20...................32.5.....................52.5..........................85
30...................27.5.....................57.5..........................85
40...................22.5.....................62.5..........................85
50...................17.5.....................67.5..........................85 (but it's already going into a SS reduction)
60...................12.5.....................72.5..........................85
70.....................7.5.....................77.5..........................85

The problem is we never know when our time is up. Sounds great if you lived to 100. Sounds pretty bad if you die at 65. Does your spouse or estate get the balance of your account if you pass during your working years or even shortly after retirement?
.......................
I no longer work at the company.
I was laid off over a year ago.
I reached the rule of 85 this past November. I worked there 30 yrs. and turned 55 last Nov.
I worked for a huge international chemical company with approximately 1.3 billion in annual revenue.
Their profits are several hundred million a year, so I'm not worried about the company going bankrupt
It doesn't pass on to my spouse but if I die she can collect my Social Security, and our house payment is under $700 per month.
 

searcher

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Student Debt Bubble Expands As Parents Do More Of The Borrowing

By: John Rubino

-- Published: Sunday, 15 July 2018

Not so long ago, student debt was mostly the responsibility of students. That is, you paid for college with loans and then paid off those loans with the proceeds of the good job you got with an advanced education.

These days it’s a little different. The cost of higher education is soaring, the jobs available to college grads don’t pay as much, relatively speaking, as they used to, and the size of loans available to students – though huge – don’t cover the full cost of many degrees.

One might expect these changes to lead more students to work for a few years and save up, or choose a cheaper degree, or eschew college altogether (as a lot of successful people now recommend) and substitute work experience for a diploma.

Some of that is happening but apparently the biggest change is that parents have stepped in to cover the difference between what their kids can borrow and the cost of a degree. As the chart below illustrates, until just a few years ago, the average debt of students exceeded that of students’ parents. But post-Great Recession, parents have given up trying to moderate the cost of their kids’ education and started doing the borrowing themselves. They’re now taking on the majority of new debts, and the gap is widening dramatically.


Source: Mark Kantrowitz (SavingForCollege.com)

Retirement Crisis?
So we can add student loans to the list of instances where people who once tried to control their borrowing have stopped trying and are now just going with the flow. Which means several things. First, kids who if left to themselves and the market would probably opt for one of the aforementioned cheaper alternatives are still in high-cost, frequently low-reward degree programs, and are being sheltered from the consequences by well-meaning parents.

Second, the retirement crisis that everyone is talking about – in which people who have never saved a penny are approaching retirement age and looking at 30 years of abject poverty – is being made that much worse by parents taking on new debts at a time of life when they should be aggressively trending towards debt-free/cash-rich.

Third and most important for people who aren’t participating in this game of financial musical chairs, the eventual implosion of the student loan market – i.e., the point at which loan defaults become intolerable – will lead to a government bailout, making student loans everyone else’s problem.

But of course the government won’t raise taxes or otherwise inflict immediate consequences on the electorate. It will borrow the money and create enough new currency to cover the first few years’ interest, leaving the longer-term consequences for later years and other people.

As with all the other mini-bubbles out there, if student loans were an isolated problem in a sea of rock-solid financial behavior they’d be easily managed. But they’re just one of many time bombs set to explode shortly. Auto loans, credit cards, underfunded pensions and increasingly mortgages and home equity lines are all heading the same way domestically, while emerging market dollar debt (which dwarfs the US mini-bubbles) is just as precarious internationally.





The question then becomes, how many of these bursting bubbles can the US paper over before the currency markets figure out that each will be followed by another, for as far as the eye can see?


http://news.goldseek.com/DollarCollapse/1531656360.php
 

Uglytruth

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^^^ Along with the rest of the world actively working against the US.

It's a strange road that morphed into this & how we got here.
 

edsl48

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Overpromising has crippled public pensions. A 50-state survey
July 19, 2018

Introduction

The real problem plaguing public pension funds nationwide has gone largely ignored. Most reporting usually focuses on the underfunding of state plans and blames the crises on a lack of taxpayer dollars.

But a Wirepoints analysis of 2003-2016 Pew Charitable Trust and other pension data found that it’s the uncontrolled growth in pension promises that’s actually wreaking havoc on state budgets and taxpayers alike.[1] Overpromising is the true cause of many state crises. Underfunding is often just a symptom of this underlying problem.

Wirepoints found that the growth in accrued liabilities has been extreme in many states, often growing two to three times faster than the pace of their economies.[2] It’s no wonder taxpayer contributions haven’t been able to keep up.



The reasons for that growth vary state to state – from bigger benefits to reductions in discount rates – but the reasons don’t matter to ordinary residents. Regardless of how or when those increases were created, it’s taxpayers that are increasingly on the hook for them.

Unsurprisingly, the states with the most out-of-control promises are home to some of the nation’s worst pension crises. Take New Jersey, for example. The total pension benefits it owed in 2003 – what are known as accrued liabilities – were $88 billion. That was the PV, or present value, of what active state workers and retirees were promised in pension benefits by the state at the time.

Today, promises to active workers and pensioners have jumped to $217 billion – a growth of 176 percent in just 13 years. That increase in total obligations is four times greater than the growth in the state’s GDP, up only 41 percent.



Many of the top-growth states – including New Jersey, Illinois, Kentucky and Minnesota – have high growth rates due to recent changes in their investment assumptions.[3]

But more honest accounting, i.e. lowering the investment rate, is hardly a comfort to the residents of those states.[4] It simply reveals just how much in promises residents are – and always have been – on the hook for.

And it’s not just the fiscal basket-cases that are in trouble. Accrued liabilities have skyrocketed in states across the country. Legislators continued to grow their obligations even as their states’ pension crises worsened during the 2003-2016 period.

Twenty-eight states allowed their accrued liabilities to outgrow their economies by 50 percent or more. And pension promises in 12 states outgrew their economies by a factor of two or more.

Pension promises were meant to be funded by a combination of employer (i.e. taxpayer) contributions, employee contributions and investment returns. But as promises have skyrocketed and assets have failed to keep up, funding shortfalls across the 50 states have jumped.

The Pew data shows that unfunded state promises – known as unfunded liabilities – grew six times, to $1.4 trillion in 2016 from $234 billion in 2003.[5]

In all, states had just $2.7 trillion in assets in 2016 to cover accrued liabilities of $4.1 trillion. And that’s the rosy scenario. Most states use assumptions that underestimate the true size of the promises they’ve made to state workers. Under more realistic assumptions, the pension shortfalls are actually $1-$3 trillion larger.[6]

Those funding shortfalls are being piled onto ordinary residents. Government employee contributions are generally fixed and investment returns aren’t enough to dig most funds out of debt. So taxpayers are stuck holding the bag for the states’ massive unfunded liabilities.

The Pew data covers 13 years of pension growth, a relatively short period when analyzing pensions. A longer-term data series is needed for a deeper analysis. Fortunately, Wirepoints was able to collect 30 years of Illinois pension data. The state’s long-term numbers show an even greater disparity between the growth in total benefits and what taxpayers can afford.[7]

Total promised benefits in Illinois are nearly 1,100 percent higher now than they were in 1987. In contrast, Illinois personal income – a proxy for GDP – was up just 236 percent during that 30-year period.[8]

Illinois is the poster child for why the common narrative surrounding pensions – that crises are due to taxpayer underfunding – is false. The real problem has been the enormous growth in accrued liabilities across the nation.

There’s no fixing pensions without dramatically scaling back that growth in retirement promises.

Growth in total pension promises across the states

Some states have experienced far higher growth in pension promises, and far more fiscal strain, than others



At the top of the list are states like New Jersey, New Hampshire, Illinois, Nevada, Kentucky and Minnesota. Several of those states have lowered their assumed investment rates as a result of their crises (see Endnote 3).

All six states experienced accrued liability growth of more than 7 percent a year between 2003 and 2016.

At the bottom of the list, states like Wisconsin, Maine, Michigan, Oklahoma and Ohio have all kept their accrued liability growth rate below 4 percent per year.

That 3 percentage-point difference in annual growth is significant when the impact of compounding is considered over a 13-year period.

It’s pushed pension promises up in the top states by 160 percent over the period. In contrast, the states with more moderate benefit growth grew their promises by a total of 60 percent or less.

In many states, that’s made the difference between fiscal stability and financial crisis.

Pensions vs. economies

A vast majority of states have experienced unsustainable pension benefit growth compared to their economies.



In 28 states, accrued liabilities outgrew their economies by 50 percent or more between 2003 and 2016.

And 12 states were totally overwhelmed by increases in their accrued liabilities. The total growth was more than double that of their economies.

Again, it was New Jersey, New Hampshire, Illinois, Connecticut and Kentucky which were the most out-of-control.

Those states have mature pension systems that have been in operation for decades. There’s little reason, in theory, for their promised benefits to grow so much faster than their economies. In some cases, it’s due to more honest reporting of their true liabilities.[9]

Other states have seen robust increases in population – thereby necessitating some growth in services – but not enough to warrant the kind of increases in their pension obligations.

Nevada’s population, for example, grew more than 25 percent. But that doesn’t justify the fact that its pension promises grew by more than two times the growth in the state’s GDP.

Overall, only six states – Rhode Island, Wisconsin, Oklahoma, Oregon, Texas and North Dakota – experienced GDP growth that exceeded the growth in their accrued liabilities.

States with the largest and smallest pension benefit growth

There is a stark contrast between the states at the top and bottom of the accrued liability growth chart. Many states with rapidly growing pension obligations are in crisis. Most states with slow-growing obligations are not.

The five states with the largest growth in promises in the nation – New Jersey, New Hampshire, Illinois, Nevada and Kentucky – have all seen their benefits grow 150 percent or more since 2003.

That explosive growth in benefits has overwhelmed many of those states’ economies and their residents’ ability to pay. Every one of the top 5 states has seen their pension benefits grow 2 to 4 times more than their GDP growth.

Growing pension obligations is also reflected in those state’s promises as a share of GDP. For example, Illinois pension promises have grown to 28 percent of GDP in 2016 from 16 percent of GDP in 2003, a 75 percent increase. New Jersey has seen its promises as a share of GDP skyrocket 96 percent, growing to 42 percent from 22 percent. (See Appendix 3 for a full list of state accrued liabilities as a percent of GDP).

Unsurprisingly, these states are also home to some of the nation’s worst pension crises.

In 2016, New Jersey had the nation’s 2nd-worst credit rating and the worst-funded pensions in the nation – only 31 percent funded.[10] Kentucky was right behind with a funded ratio of 31.4 percent. And Illinois followed closely with a funded ratio of just 36 percent and the lowest credit rating in the nation, just one notch above junk.[11]



In contrast, the lowest promise-growing states in the nation – Rhode Island, Wisconsin, Maine, Michigan and Oklahoma –all kept their annual accrued liability growth at 4 percent a year or less between 2003 and 2016. (See Endnote 3).

That kept pension benefits from overwhelming those states’ economies. Take Wisconsin, for example. The state’s pension promises grew 48 percent over the time period, less than the state’s GDP growth, up 53 percent. And Rhode Island’s economy managed to grow faster than promised benefits. Benefits grew just 24 percent while the state’s economy grew 41 percent.

A common factor among these low growth states is their more reasonable pension benefits and a willingness to enact pension reforms.

Wisconsin’s “shared risk” pension plan and relatively modest benefit structure have kept the state’s promises limited and its pension system healthier than most for decades.[12] Michigan pioneered comprehensive state pension reform. Back in 1997, the state froze pensions for some state workers and created 401(k)-style plans for them going forward.[13]

And Rhode Island enacted major pension reforms in 2011. That’s one of the reasons why the state’s benefits grew more slowly than the economy. The state introduced hybrid retirement plans, cut cost-of-living adjustments and increased retirement ages for both new and current workers.[14]

A 30-year case study: Illinois’ overwhelming pension promises

Illinois provides the perfect example of how out-of-control pension benefits can create a state pension crisis.

Wirepoints analyzed Illinois pension and economic data stretching back to 1987 using data from the Illinois Department of Insurance. Our analysis found that Illinois’ total pension promises have grown exponentially over the past 30 years.



Illinois’ 2016 accrued liabilities were 1,061 percent higher than they were three decades ago. In 1987, total accrued liabilities equaled $18 billion. By 2016, that amount had swelled to $208 billion.[15]



No other measure of Illinois’ economy even comes close to matching the growth in pension promises. That growth was six times more than Illinois’ 176 percent growth in general revenues over the same time period; eight times more than the state’s 127 percent growth in median household incomes, and nearly ten times more than the 111 percent growth in inflation.

Illinois’ dramatic increase in accrued liabilities over the past three decades has been driven by three factors: overly generous benefits, pension sweeteners and a realization that pension promises were dramatically understated due to faulty assumptions.

Since 1987, lawmakers have added benefits to Illinois pensions that:[16]

  • Add compounding to a retiree’s 3 percent cost-of-living adjustment. That doubles a retiree’s annual pension benefits after 25 years.
  • Significantly increased the pension benefit formulas for the Teachers’ Retirement System, or TRS, and the State Employees’ Retirement System, or SERS.
  • Provided lucrative early retirement options.
  • Allow workers to boost their service credit by up to two years using accumulated unpaid sick leave.
  • Grant automatic salary bumps to workers who earn masters and other graduate degrees.
  • Allow for the spiking of end-of-career salaries.
As a result of these changes, long-time state workers in Illinois receive overly generous pensions. The average newly-retired state employee who worked 30 years or more receives $68,100 in annual pension benefits and will see his or her yearly pension payments double to $140,000 after 25 years in retirement. In total, career workers can expect to collect more than $2 million over the course of their retirements.[17]

Illinois state workers also tend to retire long before their peers in the private sector. In fact, 60 percent of all current state pensioners began drawing pensions in their 50s, many with full benefits.



Changes in mortality, investment rates and other actuarial assumptions also increased the amount of total pension benefits promised. In 2016 alone, assumption changes contributed to $10 billion of a $17 billion jump in accrued liabilities.[18]

For a deeper dive into Illinois’ pension crisis, read:
Illinois state pensions: Overpromised, not underfunded – Wirepoints Special Report

Interestingly, Transparent California recently analyzed California pensions over the same period, 1987-2016, and discovered similar results. The state’s accrued liabilities grew nearly 900 percent in total, far faster than any other economic indicator.[19]

State pension asset growth

On average, state pension assets nationally grew 3.7 percent a year through 2015, almost identical to the 3.8 percent annual growth in GDP over the same period. That trend was thrown off track in 2016, a year of poor investment returns.



The accrued liability/asset dynamic of the past 15 years is particularly important because in 2003, the (weighted) average funding ratio across all state pension plans was 88 percent.

If all legislatures had taken steps in 2003 to ensure that pension promises would not grow at outrageous rates – especially in states that lowered their assumed investment rates – many states across the nation would not be in crisis today.



As with pension promises, there is a lot of variety between states as to how much pension assets have grown.

Nearly half of all states grew their assets faster than their economies, an outcome that helped offset rapidly growing pension promises. But that wasn’t enough for many states to keep up with the full pace of their promises.

At the top of the asset growth list are states like West Virginia, Nevada, South Dakota, Idaho, Nebraska and New Hampshire.

All those states saw their pension assets grow more than 6 percent a year between 2003 and 2016.

And all of them but New Hampshire are well-funded in relative terms. They have pension funding ratios of anywhere between 72 and 97 percent.

Another exception to the rule is Illinois. It had the 8th highest pension asset growth in the nation, yet it’s just 36 percent funded. That’s largely a function of the Prairie State also having the 4th-fastest growth in accrued liabilities since 2003.

At the other end of the spectrum, Michigan, Rhode Island, Pennsylvania, Kentucky, and New Jersey all saw their assets grow less than one percent annually.

That’s a big problem for most of those states, in particular for those with rapidly growing promises like New Jersey and Kentucky.

It’s no surprise that New Jersey’s funding ratio fell from 93 percent in 2003 to 31 percent in 2016.

The same goes for Kentucky, whose funding ratio collapsed from 88 percent to 31 percent over the same period.

The lethal combination of collapsing assets and fast growing promises has dropped both states’ pensions into virtual insolvency.

Changing the narrative

The pension crisis is currently wrapped up in a false narrative of underfunding – that residents have never contributed enough to state pensions.

As long as that narrative dominates, higher contributions and tax hikes will be promoted as the only “solutions” to the crisis. It’s what states with the deepest crises are pursuing.

In 2016, California extended a millionaire’s tax that’s poured billions into teacher pensions.[20] New Jersey Gov. Phil Murphy and the state legislature have just agreed to a new tax hike package.[21]And Illinois Democratic gubernatorial candidate J.B. Pritzker is fighting for a multi-billion progressive tax hike – on top of last year’s record $5 billion income tax increase.[22]

But the nation’s pension crises won’t be solved by piling higher taxes on to residents. “Underfunding” is just a symptom of the real problem plaguing pensions.

Each state’s crisis is unique – but a common factor across almost all of them is a rapid and uncontrolled growth in accrued pension liabilities.

The states’ pension crises will only be solved when there is a reversal in liability growth. And that reversal will begin when states, the media, and politicians finally address the crises as a problem of over promising, not underfunding.
 

edsl48

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"What's Next, Air?" - NJ Dems Weighing Water Tax To Help Fix Pensions

With its reserve fund depleted, and its last-minute budget agreement featuring several unappetizing tax hikes on corporations and the wealthiest people living in the state (as well as taxes on e-cigarettes and Airbnb) New Jersey lawmakers and state officials are considering yet another tax - on tap water - that would purportedly be used to fix a crumbling water delivery infrastructure, according to Fox 5.
State Sen. Bob Smith proposed the tax, which he posed as a "user fee" based on volume, saying it would add 10 cents for every 1,000 gallons of water used. Smith said that it would only add $32 a year to the "average" bill. For the record, the state already charges a public utility franchise tax on water system operators of $0.01 per 1,000 gallons. That tax, which went into effect in 1984, is supposed to "ensure clean drinking water in New Jersey."

One critic of the tax hikes pointed out that New Jersey residents, already among the most heavily taxed in the country, are once again being asked to pay more. "Once again, the most over-taxed people out of all 50 states in this country, are being asked to dig a little deeper after Phil Murphy just raised their taxes by nearly $2 billion."
The Democrat who introduced the bill is trying to package it as a "user fee." But another Dem said they should just call it what it is: another tax.
"Let's call it for what it is... it's another tax," Councilman Peter Brown D-Linden said.​
Given that New Jerseyans are already being taxed to the hilt, one newspaper columnist joked: "what's next, taxing air?."Meanwhile, Democratic Gov. Phil Murphy, a Goldman Sachs alum, has hiked taxes on almost everything to push through a $37.4 billion budget as he's promised to help the state's pension fund recover from years of chronic under-funding (back in 2015, it was the most badly underfunded pension fund in the US).
1532159713986.png

Of course, that remains a difficult - some would say politically impossible - goal, as Murphy really would need to resort to taxing more commodities and public resources (like air) to bring in the revenues needed to save the state's finances from a demise that can still be delayed with little-to-no effort...for now.
 

Uglytruth

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It will be different this time............
 

searcher

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Over-Promising Has Crippled Public Pensions, A 50-State Study


by Tyler Durden
Mon, 07/23/2018 - 21:55


Authored by Ted Dabrowski and John Klingner via WirePoints.com,

Introduction
The real problem plaguing public pension funds nationwide has gone largely ignored. Most reporting usually focuses on the underfunding of state plans and blames the crises on a lack of taxpayer dollars.

But a Wirepoints analysis of 2003-2016 Pew Charitable Trust and other pension data found that it’s the uncontrolled growth in pension promises that’s actually wreaking havoc on state budgets and taxpayers alike. Overpromising is the true cause of many state crises.

Underfunding is often just a symptom of this underlying problem.

Wirepoints found that the growth in accrued liabilities has been extreme in many states, often growing two to three times faster than the pace of their economies. It’s no wonder taxpayer contributions haven’t been able to keep up.



The reasons for that growth vary state to state – from bigger benefits to reductions in discount rates – but the reasons don’t matter to ordinary residents. Regardless of how or when those increases were created, it’s taxpayers that are increasingly on the hook for them.

Unsurprisingly, the states with the most out-of-control promises are home to some of the nation’s worst pension crises. Take New Jersey, for example. The total pension benefits it owed in 2003 – what are known as accrued liabilities – were $88 billion. That was the PV, or present value, of what active state workers and retirees were promised in pension benefits by the state at the time.

Today, promises to active workers and pensioners have jumped to $217 billion – a growth of 176 percent in just 13 years. That increase in total obligations is four times greater than the growth in the state’s GDP, up only 41 percent.



Many of the top-growth states – including New Jersey, Illinois, Kentucky and Minnesota – have high growth rates due to recent changes in their investment assumptions.

But more honest accounting, i.e. lowering the investment rate, is hardly a comfort to the residents of those states. It simply reveals just how much in promises residents are – and always have been – on the hook for.

And it’s not just the fiscal basket-cases that are in trouble. Accrued liabilities have skyrocketed in states across the country. Legislators continued to grow their obligations even as their states’ pension crises worsened during the 2003-2016 period.

Twenty-eight states allowed their accrued liabilities to outgrow their economies by 50 percent or more. And pension promises in 12 states outgrew their economies by a factor of two or more.

Pension promises were meant to be funded by a combination of employer (i.e. taxpayer) contributions, employee contributions and investment returns. But as promises have skyrocketed and assets have failed to keep up, funding shortfalls across the 50 states have jumped.

The Pew data shows that unfunded state promises – known as unfunded liabilities – grew six times, to $1.4 trillion in 2016 from $234 billion in 2003.

In all, states had just $2.7 trillion in assets in 2016 to cover accrued liabilities of $4.1 trillion. And that’s the rosy scenario. Most states use assumptions that underestimate the true size of the promises they’ve made to state workers. Under more realistic assumptions, the pension shortfalls are actually $1-$3 trillion larger.

Those funding shortfalls are being piled onto ordinary residents. Government employee contributions are generally fixed and investment returns aren’t enough to dig most funds out of debt. So taxpayers are stuck holding the bag for the states’ massive unfunded liabilities.

The Pew data covers 13 years of pension growth, a relatively short period when analyzing pensions. A longer-term data series is needed for a deeper analysis. Fortunately, Wirepoints was able to collect 30 years of Illinois pension data. The state’s long-term numbers show an even greater disparity between the growth in total benefits and what taxpayers can afford.

Total promised benefits in Illinois are nearly 1,100 percent higher now than they were in 1987. In contrast, Illinois personal income – a proxy for GDP – was up just 236 percent during that 30-year period.

Illinois is the poster child for why the common narrative surrounding pensions – that crises are due to taxpayer underfunding – is false. The real problem has been the enormous growth in accrued liabilities across the nation.

There’s no fixing pensions without dramatically scaling back that growth in retirement promises.

Growth in total pension promises across the states
Some states have experienced far higher growth in pension promises, and far more fiscal strain, than others



At the top of the list are states like New Jersey, New Hampshire, Illinois, Nevada, Kentucky and Minnesota. Several of those states have lowered their assumed investment rates as a result of their crises (see Endnote 3).

All six states experienced accrued liability growth of more than 7 percent a year between 2003 and 2016.

At the bottom of the list, states like Wisconsin, Maine, Michigan, Oklahoma and Ohio have all kept their accrued liability growth rate below 4 percent per year.

That 3 percentage-point difference in annual growth is significant when the impact of compounding is considered over a 13-year period.
It’s pushed pension promises up in the top states by 160 percent over the period. In contrast, the states with more moderate benefit growth grew their promises by a total of 60 percent or less.

In many states, that’s made the difference between fiscal stability and financial crisis.

Pensions vs. economies
A vast majority of states have experienced unsustainable pension benefit growth compared to their economies.



In 28 states, accrued liabilities outgrew their economies by 50 percent or more between 2003 and 2016.
And 12 states were totally overwhelmed by increases in their accrued liabilities. The total growth was more than double that of their economies.
Again, it was New Jersey, New Hampshire, Illinois, Connecticut and Kentucky which were the most out-of-control.

Those states have mature pension systems that have been in operation for decades. There’s little reason, in theory, for their promised benefits to grow so much faster than their economies. In some cases, it’s due to more honest reporting of their true liabilities.

Other states have seen robust increases in population – thereby necessitating some growth in services – but not enough to warrant the kind of increases in their pension obligations.

Nevada’s population, for example, grew more than 25 percent. But that doesn’t justify the fact that its pension promises grew by more than two times the growth in the state’s GDP.

Overall, only six states – Rhode Island, Wisconsin, Oklahoma, Oregon, Texas and North Dakota – experienced GDP growth that exceeded the growth in their accrued liabilities.

States with the largest and smallest pension benefit growth
There is a stark contrast between the states at the top and bottom of the accrued liability growth chart. Many states with rapidly growing pension obligations are in crisis. Most states with slow-growing obligations are not.

The five states with the largest growth in promises in the nation – New Jersey, New Hampshire, Illinois, Nevada and Kentucky – have all seen their benefits grow 150 percent or more since 2003.

That explosive growth in benefits has overwhelmed many of those states’ economies and their residents’ ability to pay. Every one of the top 5 states has seen their pension benefits grow 2 to 4 times more than their GDP growth.

Growing pension obligations is also reflected in those state’s promises as a share of GDP. For example, Illinois pension promises have grown to 28 percent of GDP in 2016 from 16 percent of GDP in 2003, a 75 percent increase. New Jersey has seen its promises as a share of GDP skyrocket 96 percent, growing to 42 percent from 22 percent. (See Appendix 3 for a full list of state accrued liabilities as a percent of GDP).

Unsurprisingly, these states are also home to some of the nation’s worst pension crises.

In 2016, New Jersey had the nation’s 2nd-worst credit rating and the worst-funded pensions in the nation – only 31 percent funded. Kentucky was right behind with a funded ratio of 31.4 percent. And Illinois followed closely with a funded ratio of just 36 percent and the lowest credit rating in the nation, just one notch above junk.



In contrast, the lowest promise-growing states in the nation – Rhode Island, Wisconsin, Maine, Michigan and Oklahoma –all kept their annual accrued liability growth at 4 percent a year or less between 2003 and 2016. (See Endnote 3).

That kept pension benefits from overwhelming those states’ economies. Take Wisconsin, for example. The state’s pension promises grew 48 percent over the time period, less than the state’s GDP growth, up 53 percent. And Rhode Island’s economy managed to grow faster than promised benefits. Benefits grew just 24 percent while the state’s economy grew 41 percent.

A common factor among these low growth states is their more reasonable pension benefits and a willingness to enact pension reforms.

Wisconsin’s “shared risk” pension plan and relatively modest benefit structure have kept the state’s promises limited and its pension system healthier than most for decades. Michigan pioneered comprehensive state pension reform. Back in 1997, the state froze pensions for some state workers and created 401(k)-style plans for them going forward.

And Rhode Island enacted major pension reforms in 2011. That’s one of the reasons why the state’s benefits grew more slowly than the economy. The state introduced hybrid retirement plans, cut cost-of-living adjustments and increased retirement ages for both new and current workers.

A 30-year case study: Illinois’ overwhelming pension promises
Illinois provides the perfect example of how out-of-control pension benefits can create a state pension crisis.

Wirepoints analyzed Illinois pension and economic data stretching back to 1987 using data from the Illinois Department of Insurance. Our analysis found that Illinois’ total pension promises have grown exponentially over the past 30 years.



Illinois’ 2016 accrued liabilities were 1,061 percent higher than they were three decades ago. In 1987, total accrued liabilities equaled $18 billion. By 2016, that amount had swelled to $208 billion.



No other measure of Illinois’ economy even comes close to matching the growth in pension promises. That growth was six times more than Illinois’ 176 percent growth in general revenues over the same time period; eight times more than the state’s 127 percent growth in median household incomes, and nearly ten times more than the 111 percent growth in inflation.

Illinois’ dramatic increase in accrued liabilities over the past three decades has been driven by three factors: overly generous benefits, pension sweeteners and a realization that pension promises were dramatically understated due to faulty assumptions.

Since 1987, lawmakers have added benefits to Illinois pensions that:

  • Add compounding to a retiree’s 3 percent cost-of-living adjustment. That doubles a retiree’s annual pension benefits after 25 years.
  • Significantly increased the pension benefit formulas for the Teachers’ Retirement System, or TRS, and the State Employees’ Retirement System, or SERS.
  • Provided lucrative early retirement options.
  • Allow workers to boost their service credit by up to two years using accumulated unpaid sick leave.
  • Grant automatic salary bumps to workers who earn masters and other graduate degrees.
  • Allow for the spiking of end-of-career salaries.

As a result of these changes, long-time state workers in Illinois receive overly generous pensions. The average newly-retired state employee who worked 30 years or more receives $68,100 in annual pension benefits and will see his or her yearly pension payments double to $140,000 after 25 years in retirement. In total, career workers can expect to collect more than $2 million over the course of their retirements.

Illinois state workers also tend to retire long before their peers in the private sector. In fact, 60 percent of all current state pensioners began drawing pensions in their 50s, many with full benefits.



Changes in mortality, investment rates and other actuarial assumptions also increased the amount of total pension benefits promised. In 2016 alone, assumption changes contributed to $10 billion of a $17 billion jump in accrued liabilities.

For a deeper dive into Illinois’ pension crisis, read:

Illinois state pensions: Overpromised, not underfunded – Wirepoints Special Report


Interestingly, Transparent California recently analyzed California pensions over the same period, 1987-2016, and discovered similar results. The state’s accrued liabilities grew nearly 900 percent in total, far faster than any other economic indicator.[19]

State pension asset growth
On average, state pension assets nationally grew 3.7 percent a year through 2015, almost identical to the 3.8 percent annual growth in GDP over the same period. That trend was thrown off track in 2016, a year of poor investment returns.



The accrued liability/asset dynamic of the past 15 years is particularly important because in 2003, the (weighted) average funding ratio across all state pension plans was 88 percent.

If all legislatures had taken steps in 2003 to ensure that pension promises would not grow at outrageous rates – especially in states that lowered their assumed investment rates – many states across the nation would not be in crisis today.



As with pension promises, there is a lot of variety between states as to how much pension assets have grown.

Nearly half of all states grew their assets faster than their economies, an outcome that helped offset rapidly growing pension promises. But that wasn’t enough for many states to keep up with the full pace of their promises.



At the top of the asset growth list are states like West Virginia, Nevada, South Dakota, Idaho, Nebraska and New Hampshire.
All those states saw their pension assets grow more than 6 percent a year between 2003 and 2016.

And all of them but New Hampshire are well-funded in relative terms. They have pension funding ratios of anywhere between 72 and 97 percent.

Another exception to the rule is Illinois. It had the 8th highest pension asset growth in the nation, yet it’s just 36 percent funded. That’s largely a function of the Prairie State also having the 4th-fastest growth in accrued liabilities since 2003.

At the other end of the spectrum, Michigan, Rhode Island, Pennsylvania, Kentucky, and New Jersey all saw their assets grow less than one percent annually.

That’s a big problem for most of those states, in particular for those with rapidly growing promises like New Jersey and Kentucky.

It’s no surprise that New Jersey’s funding ratio fell from 93 percent in 2003 to 31 percent in 2016.

The same goes for Kentucky, whose funding ratio collapsed from 88 percent to 31 percent over the same period.

The lethal combination of collapsing assets and fast growing promises has dropped both states’ pensions into virtual insolvency.

Changing the narrative
The pension crisis is currently wrapped up in a false narrative of underfunding – that residents have never contributed enough to state pensions.

As long as that narrative dominates, higher contributions and tax hikes will be promoted as the only “solutions” to the crisis. It’s what states with the deepest crises are pursuing.

In 2016, California extended a millionaire’s tax that’s poured billions into teacher pensions.[20]New Jersey Gov. Phil Murphy and the state legislature have just agreed to a new tax hike package.[21] And Illinois Democratic gubernatorial candidate J.B. Pritzker is fighting for a multi-billion progressive tax hike – on top of last year’s record $5 billion income tax increase.[22]

But the nation’s pension crises won’t be solved by piling higher taxes on to residents. “Underfunding” is just a symptom of the real problem plaguing pensions.

Each state’s crisis is unique – but a common factor across almost all of them is a rapid and uncontrolled growth in accrued pension liabilities.

The states’ pension crises will only be solved when there is a reversal in liability growth. And that reversal will begin when states, the media, and politicians finally address the crises as a problem of over promising, not underfunding.

* * *

Appendix 1: Notes on the growth of state pension promises

A. California’s 2016 pension data
The Pew data includes a revaluation of assets and liabilities by California’s Public Employee’s Retirement System (CalPERS) that occurred in FY 2016 under new GASB 67 and 68 accounting rules. As result, Pew was unable to provide a like-for-like comparison between CALPERS 2016 data and previous years.

In order to achieve a more like-for-like comparison, Wirepoints used CalPERS’ reported asset and liability data from the fund’s official 2016 actuarial report as a replacement for the Pew 2016 data.

B. Total vs. individual pension benefits
Wirepoints’ analysis does not directly address the generosity of individual pension benefits. Our analysis only examines the growth in total pension obligations – each state’s aggregate promises to its active workers and retirees.

In other words, this report focuses on the growing accrued pension liability faced by states, just as other reports address the growing aggregate of other debts.

C. Comparing promised pension benefits across states
Comparing an individual state’s growth in pension benefits to another state’s is difficult because the math behind each pension system varies widely.

The government employees covered by the state pension systems differ from state to state. For example, California’s state funds cover local/municipal employees while Illinois’ state funds do not. The benefits offered to workers also differ, as do other perks tied to retirement. For example, some states offer compounded cost of living adjustments and early retirements while others do not.

Each state’s actuarial assumptions and the changes they’ve made over the years also vary. A pension system’s assumed rate of return on investment has a major impact on its accrued liabilities. States that have lowered their assumed rates of return during the 2003-2016 period will have, everything else equal, higher accrued liability growth compared to states that have not.

D. Time period of Pew data
The Pew data covers a relatively short period in regard to the nation’s pension crisis. Problems have been building in most states for decades, long before 2003. Longer-term data needs to be collected for a deeper analysis. However, the limited data available still shows legislators continued to grow their obligations even as their states’ crises deepened during the 2003-2016 period. Despite its limitations, the Pew data provides a good proxy for how much politicians haveoverpromised pensions in each state.


Appendix 2: State pension liabilities and assets


Appendix 3: Accrued liability growth vs. economic growth


Appendix 4: Growth in accrued liabilities as a percentage of GDP
Wirepoints used the Pew Center’s pension data and economic data from the Bureau of Economic analysis to calculate each state’s total pension promises as a share of GDP. Because state pension assumptions, membership and benefits differ widely from each other, Wirepoints does not compare promises as a share of GDP across states. Instead, our analysis looked at the change, over time, in each state’s accrued liabilities as a share of GDP.



Appendix 5: Assumed investment returns of state pension funds, 2016

* * *
Download a pdf of the report: Overpromising has crippled public pensions. A 50-state survey

https://www.zerohedge.com/news/2018-07-23/over-promising-has-crippled-public-pensions-50-state-study
 

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Felon Wipes Out $100 Million In Pension Money From Unwitting Investors


by Tyler Durden
Mon, 07/23/2018 - 22:21


From the "things you don’t see at market bottoms" department, this morning the WSJ reported about a 64-year-old felon named Scott Kohn was able to rip off unwitting and financially unsophisticated investors for over $100 million, under the guise of being able to allow them to earn more retirement income by borrowing against their pensions in their later years.

The report details the demise of Mr. Scott Kohn and his company, Future Income Payments. As of today, the company is embroiled in litigation with parties like the Illinois Attorney General, its clients and other regulatory agencies who are seeking recourse for over $100 million that was irrevocably lost.

The scam product, which was then turned around and sold by different investment advisors seeking high commissions, highlights how dangerous private market investment products can be. How did Future Income Payments work: here is the WSJ:

Future Income essentially sold investors other people’s pensions. Mr. Kohn’s firm would find workers entitled to pension payments and temporarily buy the rights to those payments—effectively lending the beneficiaries money against their future pension income in what is called a “pension advance.” Then, Future Income would sell the rights to investors for a lump sum. An investor might put up $100,000 in exchange for an income of 7% for five years, for example.​

But Future Income’s apparent collapse has left investors stranded. The company is no longer collecting the pension money that funds its own payments to investors, according to court documents. Mr. Kohn couldn’t be reached for comment. It isn’t clear if he has a lawyer.​
Today Kohn’s company, Future Income Payments, is shut, according to court filings, and his investors are likely to be wiped out, according to lawyers representing them, who plan to sue scores of firms that sold Future Income products as soon as this week.

As the WSJ nots, "the blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets."

One story highlighted by the Wall Street Journal exemplifies how this scheme targeted those with a little financial acumen and are of retirement age:

JC and Mary Barb of Hemet, Calif., say their financial adviser Kevin Kraemer persuaded them to invest some $78,000 with Future Income last year. “He came to us and said, ‘Hey we can make some more money on your money,’ [and] sold us this new deal,” said Mrs. Barb, a 66-year-old retired postal worker. Her husband, a 63-year-old retired teacher, said the money “was to be a big help to us in our retirement and now it’s not there, it’s gone.” Mr. Kraemer declined to comment.​

Some clients were even advised to "refinance their homes" to buy FIP's products:

Unlike publicly traded investments, there are few rules on how pension advances can be sold or by whom. “They illustrate the problems with the financial services industry selling opaque, high-commission private investments,” says Joe Peiffer, a New Orleans-based plaintiffs’ lawyer representing some purchasers of Future Income’s products. “We have clients who were advised to cash in their pensions and refinance their homes to buy these things.”

Then in April of this year it all collapsed and Cohn had sent a letter to his investors stating FIP was under “intense regulatory pressure and legal expense,” before telling his investors that there were “no guarantees [they] would receive all payments.” Despite the fact that the company, run by a felon, claimed in its marketing materials that it had over 200 employees, it was found to be run from a rental mailbox in a UPS store near Las Vegas which Cohn had used for previous businesses.

Future Income called itself “America’s largest pension cash-flow originator,” boasting of a “global footprint of over 200 employees.” Its mailing address is a mailbox at a United Parcel Service Inc. store in a strip mall outside Las Vegas. The same address has been used by Mr. Kohn for dozens of other companies, most of them now defunct, state records show.​

Kohn had also previously pled guilty to trafficking and counterfeiting goods in 2006 and spent over a year in federal prison as a result. Bizarrely, regulators had been on the case of FIP since 2014, initially over the terms with which it was buying pension benefits. Regulators alleged that the company was lending illegally and breaching certain state laws limiting interest rate maximums on loans. The WSJ found one instance where a Gulf War veteran was charged $450/month for five years to repay a loan of $2,700. It was 10x what he had borrowed and worked out to an APR of 200%.

Not only were the FIP products toxic to begin with, but the way they were flipped and sold to people by investment advisors was just as ugly:

The sellers included Live Abundant, a firm based in Salt Lake City that promises on its website to “empower you to live a more abundant life by replacing your old, outdated retirement philosophy.” It has sold products from both Future Income Payments and Woodbridge Group of Cos. LLC, another private-market investment that collapsed, according to lawyers representing investors who said they intend to sue Live Abundant.​

Loren Washburn, an attorney for Live Abundant, said the firm plans to review what it “could have done better” in vetting the deals. “This outcome where we’re having to explore options to collect [the money due to investors] is obviously not optimal.”​

The sellers also included independent advisers registered with the Securities and Exchange Commission, such as Gus Marwieh of Austin, Texas. Mr. Marwieh “used his strong religious beliefs to engender trust from investors,” said Mr. Peiffer, who is representing some of them. Mr. Marwieh confirmed he sold Future Income products but declined to comment further.​

The worst part: if retirees are buying the line that they can be somehow making more money than in traditional investments - after the stock market has been on a decade long run higher - we can't help but wonder that when we hit the inevitable coming recession, these types of scams will only intensify in hopes of preserving the ponzi and become more abundant, instead of fading away, as scammers continue feeding naive retirees the one commodity that is in endless demand: hope.

https://www.zerohedge.com/news/2018...0-million-pension-money-unwitting-investors-0
 

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Public Sector Pensions: The Parasite Devours Its Host

By: John Rubino

-- Published: Monday, 23 July 2018

The Wall Street Journal recently highlighted a better method of analysing the impact of public sector pensions on state and local budgets. The results are ominous for government finances, the bond markets, and pretty much everything else:
A new study shows that benefits are rising faster than GDP in most states.​
Pension costs are soaring across the country, and government unions blame politicians for “under-funding” benefits. Lo, if only taxes were higher, state budgets would be peachy. The real problem, as a new study shows, is that politicians have promised over-generous benefits.​
In a novel analysis, the Illinois-based policy outfit Wirepoints compared the growth of state pension liabilities relative to state GDP and fund assets. Most studies have examined “unfunded” pension liabilities, which is the difference between current assets and the present value of owed benefits. But this obfuscates the excessive pension promises that politicians have made.​
According to the study, accrued liabilities—how much states are on the hook for—between 2003 and 2016 grew more than 50% faster than the economies in 28 states and more than twice as fast as GDP in 12 states. Leading the list are the usual suspects of New Jersey (4.3 times faster than GDP), Illinois (3.23) and Connecticut (3.18), as well as New Hampshire (3.46) and Kentucky (3.08).​
Between 2003 and 2016, New Jersey’s pension liability ballooned 176%. Unions blame lawmakers for not socking away more money years ago, though lower pension payments helped them bargain for higher pay. The reality is that New Jersey’s pension funds would be broke even had politicians squirrelled away billions more.​
Ditto for Illinois, where the pension liability has grown by 8.8% annually over the last 30 years. Yet when the Illinois Supreme Court in 2015 blocked state pension reforms, the judges rebuked politicians for inadequately funding pensions. The solution, according to unions, is always to raise taxes. But no tax hike is ever enough because benefits keep growing faster than revenues.​
New Jersey recently raised corporate and income taxes on high earners, but the state would need to spend billions more on pensions each year to adequately finance promised benefits. Illinois’s Democratic Legislature last year overrode GOP Gov. Bruce Rauner’s veto of a corporate and income tax hike. Yet the Democratic candidate for Governor, J.B. Pritzker, and unions are now campaigning to kill the state’s flat tax rate and raise taxes again.​
Stanford University lecturer David Crane has calculated that every additional penny that California schools have received from the state’s 2012 “millionaire’s tax,” which raised the top individual rate to 13.3% from 10.3%, has gone toward retirement benefits. The only salve to state pension woes, as the Wirepoints study notes, is to rein in current worker benefits.​
A case can be made – and was made a long time ago by F.D.R among many others – that the whole idea of public sector unions is misguided. As F.D.R said, “It is impossible to bargain collectively with the government,” because when government unions strike they strike against taxpayers, which he considered “unthinkable and intolerable.”

We’re seeing the truth of this now, as public sector unions use their growing clout to convince politicians to write checks that taxpayers can’t cover.

The inevitable result of a parasite that grows faster than its host is the death of the host. In this case that means municipal bankruptcies on a vast scale in the next recession, default on hundreds of billions of municipal bonds necessitating a government bailout – culminating in a system-wide crisis that pops the Everything Bubble here and around the world.

Unless something else blows up first. These days it’s not if, but when and in what order the world’s unsustainable imbalances tip over.

http://news.goldseek.com/DollarCollapse/1532349762.php
 

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1532508467491.png

Two giant US pension funds admit there’s a BIG problem
Simon Black

July 24, 2018

New York City, USA
I’ve been talking a lot about the looming pension crisis…
My short thesis is, if you’re depending on a pension for your retirement, it’s time to start looking elsewhere.
Pensions are simply giant funds responsible for paying out retirement benefits to workers.
And today, the nation’s 1,400 corporate pension plans are facing a $553 billion shortfall. And, according to Boston College, about 25% will likely go broke in the next decade.
Think about that… A full one-quarter of US, non-government employees expecting a pension to fund their retirement will likely get zilch.
And it’s even worse for the government…
According to credit-rating agency Moody’s, state, federal and local government pension plans are $7 trillion short in funding.
The reason for this crisis is simple – investment returns are too low.
Pension funds invest in stocks, bonds, real estate, private equity and a host of other assets, hoping to generate a safe return.
But with interest rates near their lowest levels in human history, it’s been difficult for these pensions to generate a suitable return without taking on more and more risk.
And that’s another big problem with pensions – their investment returns are totally unrealistic.
Most pension funds require a minimum annual return of about 8% a year to cover their future liabilities.
But that 8% is really difficult to generate today, especially if you’re buying bonds (which is the largest asset for most pensions). So pensions are allocating more capital to riskier assets like stocks and private equity.
And so far it’s working.
The California State Teachers’ Retirement System (CalSTRS) and California Public Employees’ Retirement System (CalPERS) both earned more than 8% for the second fiscal year in a row. CalPERS is the largest public pension in the US. And, together, the two funds manage $575 billion for 2.8 million public workers and retirees.
Two 8%+ years isn’t the norm. Over the past 10 years ending June 30, CalSTRS returned an annualized 6.3% a year – well below its target. And CalPERS has returned a dismal 5.1% over the same period.
And that’s been with the tailwind of one of the longest equity and fixed-income bull markets in history.
It’s clear these inflated gains can’t last.
And the two California pension giants are even admitting the game is up.
No, no more 8% target return, as we teeter on the edge of what could be the largest market correction of our lifetime.
CalSTRS is making the bold move to drop its future goal to… 7%.
And CalPERS is ratcheting down its return goals in steps to… wait for it, 7% by 2021.
Listen, it’s a nice gesture for these big funds to lower their expected returns and admit things are tough out there.
But 7% is still totally unrealistic. And that’s not even taking into account the tough times I see ahead for markets. Pensions haven’t been able to hit a 7% return in the best of times.
As of June 2017, the 10-year annualized median return for all public pensions tracked by the Wilshire Trust Universal Comparison Service was 5.57%.
That’s nearly 250 basis points below the 8% target.
But there’s another way pensions make money… they collect funds from active workers and taxpayers.
When these funds drop their return expectations, it has real life implications. With a lower, projected return, a pension fund needs more cash to pay out its future liabilities.
For example, CalPERS, which is dropping its expected return to 7% by 2021, said the state and school districts paying into the pension will have to pay at least $15 billion more over the next 20 years once the 7% target kicks in.
So, people depending on a pension not only likely won’t get the money owed to them in the future… but they’ll also get stuck paying more into the system today. It’s a true lose/lose.
 

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^^^And all this plays into the hands of the banksters. Take money out of a mans pocket by any means so he is broke and then we can fleece him for homes, cars, credit cards, vacations, education, medical needs, coffee, sale items, whatever.

Yes, it really is that simple.

I really am starting to think the low interest rates are so boomers CAN'T RETIRE! If interest rates were 5-8% many would have dropped out of the work force years ago. Leaving purple haired, tattooed, undependable, unmanageable freaks to prove how incompetent they really are.
 

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Philadelphia Plunders Its Property-Owners For Cash


by Tyler Durden
Tue, 07/31/2018 - 13:30


Authored by Simon Black via SovereignMan.com,

Like a lot of major cities in the United States, Philadelphia is in pretty rough financial condition.




One of the city’s biggest problems is its woefully underfunded public pension, which has a multi-billion dollar funding gap.

In 2001, Philadelphia’s pension fund was still in decent shape with a funding level of 77%, meaning that it had sufficient assets to meet 77% of its long-term obligations.

By 2017 the funding level had dropped to less than 50%.

Part of this is just blatant mismanagement; while most of the market soared in 2016, for example, Philadelphia’s pension fund lost about $150 million on its investments, roughly 3.17% of its capital.

It’s interesting that, along the way, the city has actually tried to fix the problem. Between 2001 and 2017, the amount of money that the city contributed to the pension fund actually increased by 230%.

Yet despite increasing contributions to the fund, the fund’s solvency level keeps shrinking.

Mayor Jim Kenny summed up the grim situation in his budget address last year:

The City’s annual pension contribution has grown by over 230 percent since fiscal year 2001. . . These increasing pension costs have caused us to cut important public services while the pension fund’s health has grown weaker. In fact, our pension fund has actually dropped from 77 percent funded to less than 50 percent funded during the same time our contributions were so rapidly increasing.​

So, desperate for revenue, the local government has been relying on an old tactic to get their hands on every spare penny they can.
The city of Philadelphia owns the local gas company - Philadelphia Gas Works (PGW). It’s essentially a local government monopoly.

And over the last few years, PGW developed an automated system to comb its billing records, find delinquent accounts, and file a lien on those properties.

If you’re not familiar with real estate law, a ‘lien’ is a formally-registered security interest in which your property serves as collateral for a debt.
When you borrow money from the bank to buy a home, for example, the bank registers a lien over your home for the value of the mortgage.
The lien prevents you from selling the home until you satisfy the debt. It also means that if you don’t pay the debt, the lienholder (the bank, or the gas company) can seize the property.

In PGW’s case, the gas company is filing liens over people’s properties due to unpaid gas bills for as little as $300.



There is essentially zero due process here.

It’s not like the gas company has to go in front a jury and prove that there’s an unsatisfied debt.

They just have their automated system file some papers, and, poof, the lien is registered.

So someone could have their home encumbered for a $300 late bill that ended up being an administrative error.

More importantly, it’s curious why the gas company is filing a lien against the property... because it’s entirely possible that the delinquent customer isn’t even the property owner.

Let’s say you’re a landlord and renting out your investment property to a tenant… and the tenant doesn’t pay his gas bill: PGW will put a lien on your property, even though it’s not your bill.

Even worse, you wouldn’t even know about it, because PGW would be sending the late notices to the tenant… not to you.

At that point it turns into a total bureaucratic nightmare.

If you’re lucky enough to even find out about it, you call PGW to try and get the lien removed.

But (according to court documents), PGW tells angry landlords that they have no control over the lien process, and tell people to file a complaint with the Pennsylvania Public Utility Commission.

But then the Pennsylvania Public Utility Commission tells you that they have no jurisdiction over liens in Philadelphia, and that you should talk to the utility company.

Classic government bureaucracy. You just get bounced around between various departments and nothing ever gets resolved from a problem that you didn’t even create.

Well, a bunch of landlords finally had enough of this nonsense, so they got together and sued the city in federal court.

It seemed like a slam dunk case. Why should property owners be held liable for the actions of their tenants?

If tenants don’t pay for their own gas, the tenants should be held responsible… not the property owners.

Common sense, right?

Wrong. The landlords lost the case.

Two weeks ago the US District Court for the Eastern District of Pennsylvania ruled that the City of Philadelphia was well within its rights to hold property owners responsible... and to file a lien on the property without even notifying the owner to begin with.

This is a pretty strong reminder of how low governments will sink when they become financially desperate.

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide.

https://www.zerohedge.com/news/2018-07-31/bankrupt-philadelphia-plunders-its-property-owners-cash
 

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So the landlords must now take over the utilities and raise rents to reflect that...what a pain.[/QUOTE]
 

edsl48

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The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy
Many retirement funds could face insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed
For the past century, a public pension was an ironclad promise. Whatever else happened, retired policemen and firefighters and teachers would be paid.

That is no longer the case.

Many cities and states can no longer afford the unsustainable retirement promises made to millions of public workers over many years. By one estimate they are short $5 trillion, an amount that is roughly equal to the output of the world’s third-largest economy.

1533089366284.png


Certain pension funds face the prospect of insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed. It is increasingly likely that retirees, as well as new workers, will be forced to take deeper benefit cuts.
In Kentucky, a major pension plan covering state employees had about 16% of what it needs to fulfill earlier promises, according to the Public Plans Database, which tracks state and local pension funds, based on 2017 fiscal year figures. A fund covering Chicago municipal employees had less than 30% of what it needed in that fiscal year, according to the same database. New Jersey’s pension system for state workers is so underfunded it could run out of money in 12 years, according to a Pew Charitable Trusts study.

When the math no longer works the result is Central Falls, R.I., a city of 19,359. Today, retired police and firefighters are wrestling with the consequences of agreeing to cut their monthly pension checks by as much as 55% when the town was working to escape insolvency. The fiscal situation of the city, which filed for bankruptcy in 2011, has improved, but the retirees aren’t getting their full pensions back.


Retired Central Falls firefighter Paul Grenon.PHOTO: GRENON FAMILY
“It’s not only a financial thing,” said 73-year-old former Central Falls firefighter Paul Grenon, who retired from the department after a falling wall punctured his lung, broke his back and five ribs, and left him unable to climb ladders. “It really gets you sick mentally and physically to go through something like this. It’s a betrayal, as far as I’m concerned.”

Uncertainty over public pensions is one reason some Americans are reaching retirement age on shaky financial ground. For this group, median incomes, including Social Security and retirement fund receipts, haven’t risen in years. They have high average debt, and are often using savings for their children’s educations and to care for their elderly parents.

The public pension arose from the aftermath of the U.S. Civil War. New York was the first city in the U.S. with a pension fund for injured police officers in 1857 and then for firefighters in 1866. The concept of a public pension plan for government workers became widespread in the early decades of the 20th century. The understanding was employees would accept relatively lower pay in exchange for richer, guaranteed benefits once they retired.

When times were flush, politicians made overly generous promises. Public-employee unions made unrealistic demands. High-profile municipal employees, such as coaches at public universities, have drawn fire for what some consider too-rich retirement benefits, while some first responders scored rich early retirement and disability arrangements.



Extended lifespans caused costs to soar, as did increasingly expensive medical care, which unions put at the center of contract negotiations, among other benefits.

A technology-led stock market boom in the late 1990s produced a brief period of surpluses in pensions, according to figures from Pew, before deficits began to creep higher in the mid 2000s. Deficits accelerated following the 2008 financial crisis, which caused steep losses for many funds just as large numbers of baby boomers began to retire.

State and local pensions lost roughly $35 billion in assets between 2008 and 2009, according to Pew. Liabilities, meanwhile, ballooned by more than $100 billion a year, widening the difference between the amount owed to retirees and assets on hand. Not even a nine-year bull market in stocks could close that gap.

Officials, taxpayers and public-sector employees are increasingly at odds as they figure out what comes next. The board overseeing Puerto Rico, which filed for the largest-ever U.S. municipal bankruptcy in 2017, this year certified an average 10% cut in certain retiree pensions as part of a plan to restore the island to solvency. The governor has vowed not to implement it, a face-off that will likely end in court.

In the Bluegrass State, a judge in June ruled that a reduction in new worker benefits championed by Kentucky’s governor was unconstitutional because of the way lawmakers passed it. The state’s attorney general opposed the cuts. The case could end up at the state Supreme Court.



Climbing Cost
Public pensions are becoming a growing burden for many states and cities across the U.S.



In California, several cases before the state’s Supreme Court are testing an influential 1955 rule that stipulates benefits for public employees can’t be cut. Gov. Jerry Brown is predicting pension reductions in the next recession if that rule is loosened. A change in that law might persuade other states to reach for deeper benefit reductions.

State and local pension plans in the U.S. now have less than three- quarters of the money they need to meet their promised payouts, their lowest level since at least 2001, according to Public Plans Database figures weighted by plan size. In dollar terms the hole for state and local pensions is now $5 trillion, according to Moody’s Investors Service. Another estimate of unfunded state pension liabilities, from Pew, is $1.4 trillion.

The prospect of lower benefits is particularly daunting for pensioners in their 60s. Those older are likely to die before a large reckoning, while those younger have years left in their careers to make new plans. But many in their 60s have spent four decades assuming a financial promise that is no longer guaranteed.
There are few easy solutions. Cities and states can either raise taxes, cut services or become more aggressive about reducing benefits to retirees. For many years governments were unwilling to take these steps because they weren’t politically palatable, although public appetite to cut public-employee benefits is emerging, in states including Wisconsin. Many governments opted to change benefits for new employees, which in some cases didn’t fully alleviate funding woes.

In San Jose, Calif., voters approved cuts to police pensions in 2012 only to roll back those changes after hundreds of officers quit and the crime rate increased. The measures were revised, with savings coming in part through changes to retiree health care.

San Jose Mayor Sam Liccardo said the bulk of the police departures took place before the pension revamp as a result of earlier hiring freezes, layoffs and pay cuts. He doesn’t see the pension changes as a factor in the crime rate.

San Jose has taken “our medicine perhaps earlier than others have,” said Mr. Liccardo. “This is medicine that hundreds of cities and many states are going to have to take,” he added.

Retirees in other cash-strapped states said they expect to lose some of what they have been promised. “It may sustain itself before I die,” Len Shepard, 68, a retired teacher in Pennsylvania said of the pension system in his state. “But I don’t see how it can continue to do so.”

Central Falls, which sits 7 miles north of Rhode Island’s capital, is one of several former industrial towns that speckle the Blackstone River Valley.

It provided for public workers under a number of pension plans. Under one, firefighters hired after July 1972 could retire after 20 years of service, essentially in early middle age, receiving half of their final base salary. They could earn another 2% a year for up to five additional years of work and 1% a year after that, up to 65% of their end salary if they retired after 30 years.

The city’s required contribution to its police and fire pensions was about $4 million in fiscal year 2011, the last fiscal year before its bankruptcy, or 20% of the total, said Finance Director Leonard Morganis.

Central Falls didn’t pay that year, or in either of the previous two, given the severity of the city’s economic woes. Rhode Island officials then took the rare step of passing legislation that put bondholders ahead of other creditors and pensioners in the event of a municipal bankruptcy.

After the 2011 bankruptcy, an event that received national attention amid predictions of widespread municipal failures, retirees agreed to 55% cuts because they feared facing even deeper cuts later.

The concessions helped Central Falls emerge from bankruptcy in 2012 and create a “rainy day fund” that now holds $2 million. The town hired a grant writer to help secure money for a new firetruck with smaller wheels custom-made for the town’s narrow streets. The truck is emblazoned with an image of Yosemite Sam dressed as a firefighter that reads “The Wild Mile,” the city’s nickname.

Even though the town is on a better fiscal footing, and state contributions blunted the full impact of the cuts, retired workers are still grappling with how their lives were altered in matters big and small. Two men lost their homes to foreclosure after falling behind on their mortgages. Others had problems paying medical bills as they fought terminal illnesses.


Paul Grenon when he started at the Central Falls Fire Department in 1967. PHOTO: GRENON FAMILY
Mr. Grenon, the firefighter who retired after he was injured, says the pension reduction left him without enough money each month to cover a $300 prescription lung medication. He has medical coverage but said the medication is beyond what is covered.

George Aissis, a retired Central Falls firefighter, says he has so little left in his checking account he has to buy groceries when they are on sale and use as little power or gas as possible.

The pension settlement cut his income by $1,200 a month to about $2,600, including an additional state contribution. On one recent Wednesday, he said there was $6.01 in his checking account.


“I never used coupons before, but I know about coupons now,” Mr. Aissis said. “You gotta cut back on things when the money is not there.”

Central Falls Mayor James Diossa, in an interview, called the 2011 pension cuts “unfortunate” but said they did alleviate long-term budget pressures for the city. “These aren’t big pensions, but a lot of these folks built their lives around it,” he said. “To see them get cut was devastating.”

Under the changes, many current workers have to work longer than they thought when they signed up and some will get a lower percentage of their final salary than they would have under the old plan.


Central Falls Mayor James Diossa. PHOTO: GRETCHEN ERTL FOR THE WALL STREET JOURNAL
Some retirees whose income was cut are now arguing their benefits should be restored to prebankruptcy levels.

The person in charge of that effort, 52-year-old former firefighter Don Cardin, acknowledged he and his colleagues have no legal recourse to restore lost benefits since they signed them away in the settlement.

One of his bleaker arguments contends that firefighters tend to have shorter lifespans because of smoke inhalation and other workplace hazards. That means the town, which also covers some health benefits, is unlikely to have to pay the added benefits for more than a decade.

Despite the city’s surplus, the mayor said Central Falls is unlikely to restore the pensions.

What happened in Central Falls is “certainly not going to be a one-off,” said Robert Flanders, who acted as the city’s state-appointed receiver. “Because other cities and towns, not just in Rhode Island but across the country, are still in bad shape.”

Write to Sarah Krouse at sarah.krouse@wsj.com
 

Uglytruth

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Underfunded because of QE, obamacare, foolishness......... think about it.
 

searcher

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Four city labor contracts, 1 pension fund and a plan to close a $6 billion gap


Philly.com
by Claudia Vargas August 1, 2018 - 6:00 AM



While the Kenney administration has negotiated contracts with the city's four major labor unions during the last two years that gave them all substantial raises, it also says it has taken action to reform the severely underfunded pension fund by requiring employees to kick in more money for their retirement benefits.

City officials contend the additional contributions, a $65,000 cap on future payments for new non-uniformed workers, and increased infusions of cash from the sales tax will lift the pension plan to the targeted 80 percent funding level by 2029.

Finance experts say, however, that the city's projections are unrealistic. They cite the city's 7.65 percent assumed rate of return on investments, which they say is too high and risky, and the continuation of two pension-bonus programs.


For now, the plan has only 45 percent of the $11.3 billion it needs to pay current and future retirees their promised pensions.

The goal of getting to 80 percent in 12 years probably is too optimistic and "notable improvement will likely require more time to come to fruition," S&P credit analysts said in a report released last week.

Michael Karp, a longtime member of the Pennsylvania Intergovernmental Cooperation Authority, a state board that oversees Philadelphia's finances, recalled similar projections made 10 years ago.

"We talk about 80 percent, but we never get there. We never get out of that 45 percent. We seem to be stuck on that," Karp said during last week's PICA meeting.

Rob Dubow, the city finance director, said that the aftermath of the Great Recession and the fact that retirees are living longer have impacted the fund.

In an interview with the Inquirer and Daily News, Dubow said that while some might dispute how long it will take the pension fund to reach 80 percent, the increased contributions will move the plan closer to the target than if the city had done nothing.

"You can get to an increased funding percent either through reducing the growth in liabilities or increasing assets," Dubow said. "We get there with a slightly different combination than we started with, but we still get there, and that's the important thing."

When Kenney signed a contract in 2016 with the city's blue-collar workers, represented by AFSCME District Council 33, he contended he had achieved pension reform by creating a hybrid plan that would cap defined benefits at $50,000 for all new employees and require current employees to pay more into the fund. Employees who had a salary of $45,001 or higher would contribute between 0.5 and 3 percentage points more. (The average salary for DC33 employees is $38,000.)

The city wanted to use the DC33 contract as a target for the other three unions, which have higher average salaries and whose increased contributions would have a bigger impact. Officials said if everyone agreed to DC33's plan, the city would reach 80 percent funding by 2030.

None of the unions signed on, however. In fact, the city ended up increasing DC33's cap and reduced the contribution rates. Yet the city maintains that 80 percent projection.

Now, all non-uniformed employees, union and nonunion, with a salary of $45,001 or higher will contribute between 0.5 and 2.75 percentage points more, depending on salary. For new employees, pensions will be capped at $65,000. Elected officials will pay more into the fund, but they will not be forced to go into the plan that would cap their benefits.

All police and firefighters, whose contracts were decided through arbitration, will continue to have a defined-benefits plan. Most current members will have to contribute an additional 1.84 percentage points of their salaries; new members, 2.5 percentage points above the 5 percent rate, or 7.5 percent.

The city's actuary predicts that the increased contributions will pump an additional $290 million annually into the pension fund over the next 10 years for a total of $1.4 billion.


During the same 10-year period, the city plans to add $9.6 billion into the fund, including $750 million in sales tax revenue.

The fund has prospered during the last two years. In fiscal year 2017, it had a 13 percent investment gain and preliminary numbers for fiscal year 2018, which ended June 30, have it at 8.1 percent.

But in 2016, the fund's investments lost $149 million, and taxpayers often have to make up losses when the fund doesn't perform as expected.

In addition to the investment return risk, S&P analysts found that Philadelphia's Pension Adjustment Fund, which doles out bonuses to retirees when the fund does well, will prevent the city from making significant gains in the good market years.

"It is an imbalance," Todd Kanaster, an analyst with S&P, said of the Pension Adjustment Fund. "When the market doesn't do well, there's no sharing. That's entirely borne on the city. If there's a gain, it's split with the retirees. There goes a lot of the asset gain."

City spokesperson Mike Dunn said the Pension Adjustment Fund is the equivalent of a cost-of-living adjustment, which the mayor describes as important and fair.

In the last three years, the Pension Adjustment Fund has sent retirees nearly $70 million in bonus checks.

PICA has been critical of the city's pension adjustment fund, as well as the city's continuance of the controversial Deferred Retirement Option Plan (DROP), which the authority says has cost the city at least $237 million over the 16-year period ending in 2015.

City officials say that one of the biggest achievements in the new contracts is making the hybrid plan mandatory for new non-uniformed employees; the previous administration had a similar plan but it was mostly voluntary.

"We tried to develop a plan that we thought would work for Philadelphia," Jim Engler, the city's deputy mayor for policy and legislation, said in an interview. "We tried to do that in a way that was holistic, provided at least a continued secure pension benefit for employees, reduced the city's liabilities in a similar way and was able to be achievable, and I think that's what we got by securing a mandatory new plan."

Analysts at both S&P and Moody's said that the new, stacked hybrid plan for new non-uniformed employees are a positive and should improve funding levels over time.

"It's not going to lower the unfunded liability today," said Tom Aaron, a vice president and analyst at Moody's Investors Service. "Over time as more and more of new employees are in the hybrid plan, the city's risk profile would be coming down a bit and that's a positive."

http://www2.philly.com/philly/news/...a-plan-to-close-a-6-billion-gap-20180801.html
 

searcher

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Philly makes pension management harder than it has to be | Editorial

by The Inquirer Editorial Board August 3, 2018


The city's $11.3 billion pension fund is currently funded at 45 percent. The city claims it is on track to close the funding gap — and to have the fund 80 percent funded by 2029.

If only we could believe that this will actually happen.

A report issued last week by Standard & Poor's warned that the city is again overestimating the assumed rate-of-return, which means that the fund is in even less funded than we think.

The city insists on calculating the fund's level of funding with a projected rate-of-return of 7.65 percent a year. Both economists and for-profit companies agree the rate is unrealistic.


Just three years ago, State Auditor General Eugene DePasquale urged the city to adjust those projections to below 6 percent; in fact, that is still higher than the maximum assumed rates that corporate pension programs are allowed to use by law — 5 percent. But the city continues to use the higher number.

To get such high returns, the city's strategy is to pursue riskier investments, which are volatile. A look at recent years shows that pattern — the fund gained 12.9 percent in fiscal year 2017, lost 3.17 percent in 2016, and gained only 0.29 percent in 2015. The city's hope is that over time, the rate-of-return will average out to 7.65 percent or higher.

The state of the fund is already taking its toll. In March, S&P downgraded the city's credit rating, citing among other reasons, the pressures on pension obligations. Being overly optimistic is not going to make the problem go away.

But the city makes the pension issue even more challenging by handing out pension bonuses.

In 1999, City Council created a Pension Adjustment Fund to issue bonuses to retirees if the fund is healthy — 76.7 percent funded — and investments are performing well. In 2007, then-Councilmember Jim Kenney sponsored legislation removing the safeguard, forcing the city to pay out bonuses even when funding is low. Exactly that happened in 2016: even though the pension fund lost $218 million of its value in 2015, and although the fund was funded below 50 percent, the Pension Board approved $7.7 million in bonuses.

At a time of pension shortfalls, retaining these bonuses is irresponsible.

Kenney calls the Adjustment Fund a “cost of living adjustment.” The Philadelphia Intergovernmental Cooperation Authority, the city’s fiscal watchdog, has called for dropping the perk.

Three out of four city employees will reach retirement age in the next 15 years. Philadelphia will pay out these pensions one way or another, and if there is not enough money in the fund — which seems more likely than not — the city will have to dip into the general fund. The city is already planning to infuse $750 million in sales tax revenue into the fund to close the gap.

City Council and the mayor should end the Pension Adjustment Fund or restore more stringent conditions for issuing bonuses. The Philadelphia Board of Pensions should be more aggressive about lowering the projected returns. It's not an easy task to get the pension fund in better shape, but we shouldn't be making it harder than it needs to be.

Posted: August 3, 2018 - 4:08 PM

The Inquirer Editorial Board

http://www2.philly.com/philly/opini...-gap-retirement-retiree-bonuses-20180803.html
 

edsl48

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Another Way Of Looking At The Pension Crisis, As “A Stealth Mortgage on Your House”
AUGUST 6, 2018 2 COMMENTS

Money manager Rob Arnott and finance professor Lisa Meulbroek have run the numbers on underfunded pension plans and come up with an interesting – and highly concerning – new angle: That they impose a “stealth mortgage” on homeowners. Here’s how the Wall Street Journal reported it today:

The Stealth Pension Mortgage on Your House

Most cities, counties and states have committed taxpayers to significant future unfunded spending. This mostly takes the form of pension and postretirement health-care obligations for public employees, a burden that averages $75,000 per household but exceeds $100,000 per household in some states. Many states protect public pensions in their constitutions, meaning they cannot be renegotiated. Future pension obligations simply must be paid, either through higher taxes or cuts to public services.
Is there a way out for taxpayers in states that are deep in the red? Milton Friedman famously observed that the only thing more mobile than the wealthy is their capital. Some residents may hope that they can avoid the pension crash by decamping to a more fiscally sound state.
But this escape may be illusory. State taxes are collected on four economic activities: consumption (sales tax), labor and investment (income tax) and real-estate ownership (property tax). The affluent can escape sales and income taxes by moving to a new state—but real estate stays behind. Property values must ultimately support the obligations that politicians have promised, even if those obligations aren’t properly funded, because real estate is the only source of state and local revenue that can’t pick up and move elsewhere. Whether or not unfunded obligations are paid with property taxes, it’s the property that backs the obligations in the end.
When property owners choose to sell and become tax refugees, they pass along the burden to the next owner. And buyers of properties in troubled states will demand lower prices if they expect property taxes to increase.
It doesn’t matter if we own or rent; landlords pass higher taxes on to tenants. Nor does it matter if properties are mortgaged to the hilt or owned outright. In time, unfunded pension obligations will be reflected in real-estate prices, if they aren’t already. A state’s unfunded liabilities are effectively a stealth mortgage on private property. Think you can pass your property on to your heirs? Only net of the unfunded pension obligations.
We calculated the ratio of unfunded pension obligations relative to property values in each state. We used 3% bond-market yields as our discount rate to measure unfunded obligations, because while other assets ostensibly earn a risk premium above the bond yield, these assets can also underperform.
Unfunded pension obligations range from a low of $30,000 per household of four in Tennessee to a high of $180,000 per household in Alaska. They amount to less than 11% of the average home values in Florida, Tennessee and Utah and more than 50% in Alaska, Mississippi and Ohio.
There are a few surprises. California, Hawaii and New York have large unfunded obligations, but because property in these states is so expensive, the average household burden is less than 15% of the average home price. Meanwhile, West Virginia and Iowa have relatively low pension debts—but the average household obligation is more than 30% of the average home price because property is far less expensive in these states.
On average nationwide, unfunded state and local pension burdens represent 20% of real-estate values. This ratio can rival or exceed an owner’s home equity, depending on the size of his mortgage. If real-estate prices adjust to reflect unfunded pension obligations, many homeowners’ equity could be at risk. As we’ve seen in Detroit, the public pension stealth mortgage can ultimately devastate the housing market.​
This is yet another confirmation that we’re not nearly as rich as we think we are. If your home is your biggest asset but a big part of your equity is secretly claimed by the local government, you don’t really own it. And if you’re counting on a public sector pension and home equity to finance your retirement you might be hit with a double whammy when your pension is cut (despite what the state constitution says, it will be cut one way or another) at the same time your property tax bill soars to protect what’s left of pension benefits.
And the pension crisis is actually much worse than Arnott’s and Meulbroek’s research implies, because they’re using peak-of-the-cycle numbers. When the next recession brings an equities bear market, pension plans will lose money, causing their underfunding to explode. So that 20% stealth mortgage is about to get even bigger.
 

edsl48

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RETIRING AS EARLY AS AGE 50, SPRINGFIELD MUNICIPAL PENSIONERS BANK OVER $1M
Among the 23 former city of Springfield employees who retired at age 50, five have accumulated more than $1 million in pension benefits.

For many former local government employees enrolled in the Illinois Municipal Retirement Fund, or IMRF, early retirement isn’t unusual.

But for five former city of Springfield employees who retired at just 50 years old, that has also meant more than $1 million in total pension benefits.

In the last 20 years, 23 former Springfield employees retired at 50 years old, according to IMRF records. The five retirees who have since become pension millionaires each receive current annual payouts larger than the total amount they contributed to IMRF over the course of their careers.

These retirees are only a handful of former city of Springfield employees who have benefitted from overgenerous pension benefits. The city has 1,155 retired employees enrolled in IMRF. Among them, eight collect annual pension payouts greater than $100,000, and more than 50 have collected at least $1 million in total retirement benefits over the course of their retirements, according to IMRF records.


1534513111954.png

It’s not the fault of local government retirees that this system is unaffordable for taxpayers. State lawmakers set the rules. But rising property tax bills driven by growing pension costs are crushing Springfield homeowners. While many municipal retirees benefit from overpromised pensions, Springfield taxpayers are stuck with the bill.

According to property data company ATTOM Data Solutions, residents of Sangamon County – where Springfield is located – paid an average effective property tax rate of 2.3 percent in 2017. That’s nearly double the national average. For the typical Springfield homeowner, those property tax dollars flow to 10 different units of local government, with the city being the second-largest recipient. More than 11 percent of that homeowner’s property tax bill went to the city in 2017, with 100 percent of those funds going to pensions.

It’s a growing problem: Property taxes in Sangamon County have increased by $446 per person over the last 20 years, adjusted for inflation, outgrowing home values by 49 percent.

If the city’s high pension costs aren’t reined in, Springfield homeowners can expect not only to see their property taxes continue to increase, but more of those bills dedicated to pensions rather than government services as well.

This system is not sustainable. For the benefit of taxpayers and government workers alike, lawmakers should immediately implement 401(k)-style retirement plans for all new government workers. This would provide relief to overburdened taxpayers and a more promising future for government employees. In the long term, however, state lawmakers must amend the Illinois Constitution to allow adjustments to future, unearned benefits for government workers.
 

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^^^^ perhaps it's shit like that, that will finally wake up the people who pay the bills so that they start paying attention to what their Representatives are doing in their names.
 

Thecrensh

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^^^^ perhaps it's shit like that, that will finally wake up the people who pay the bills so that they start paying attention to what their Representatives are doing in their names.
Nope. Not gonna happen. Most people are too busy watching "America's Got Talent" or doing the idiotic "KiKi" dance while their car rolls down the road without them driving.
 

Joe King

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Nope. Not gonna happen. Most people are too busy watching "America's Got Talent" or doing the idiotic "KiKi" dance while their car rolls down the road without them driving.
It won't be tomorrow for sure, but as more and more start collecting these huge pensions and the tax bills really start having to go up in order to pay for all of it, they will be forced to.
 

the_shootist

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These people are fucking stupid!!! I mean a level of stupid not ever seen in human history!! I'm struggling to understand how people become this stupid and why there are so many of them.
 
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Son of Gloin

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They just get crazier and stupider. One of those fools was a cop. That one girl, near the beginning, got seriously messed up by a car, going the opposite direction. (same direction, actually, just faster)
 
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Thecrensh

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These people are fucking stupid!!! I mean a level of stupid not ever seen in human history!! I'm struggling to understand how people become this stupid and why there are so many of them.

They are followers trying to "belong" and "fit in". That's all. They want attention for whatever psychological reason, and this is one way they can get said "attention".
 

Hystckndle

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Made it to 2:58..dammit man.

Speaking of pensions,
Been talking to my friends a LOT about this stuff.
Answers remain from,
No clue what I am going to do when 65 pr 66 to
Military Pension plus combat pay plus social security
to Union Pensions at +- 400 to 500 grand
to another neighbor who actually does NOT talk to me anymore.
Would not stop drinking and the drugs and is now homeless and hanging around the other guys
in the hood who are still living with their elderly parents.
I am thinking there is a LOT of that going to happen.
Back a little later.
 

Goldhedge

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No clue what I am going to do when 65 pr 66
That's a pretty good plan. I'd be looking into Plan B - whatever that might be. You never know if pensions will be history by retirement time...

Some say $100 a month into a tax free Roth IRA for 30 years invested in 'something' that will be around in 30 years is a good Plan B.

Some folks here put a % into PM's and a Roth.

It's getting so you can't predict the future anymore....