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The Suddenly Poor Life: Millions Will Lose Their Pensions

southfork

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No one should have a taxpayer funded pension over 50k unless they made large contributions, these unions and crooked politicians have got to be corralled, wheres that noose shootist?
 

Goldhedge

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No one should have a taxpayer funded pension over 50k unless they made large contributions, these unions and crooked politicians have got to be corralled, wheres that noose shootist?
The problem with setting a limit, a 'number', is inflation.

$50k sounds like a large amount, but $1.50/hr back in the 1960's was a large amount for minimum wage. No longer.

Eliminate inflation and one could live comfortably on $36K a year.
 

keef

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Good pension plans used to help keep our civil servants honest and graft free, now they use them to buy out all those who work in government, play ball or loose your pension.

They will simply bail out all the public pension funds after taxing citizens to the limit.

If you could print money out of thin air in your own backyard would you be worried about anything?
 

searcher

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Illinois' Other Debt Disaster: $73 Billion Unfunded State Retiree Health Benefits


by Tyler Durden
Wed, 12/05/2018 - 19:30


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

Pensions get all the attention when it comes to Illinois’ collapsing finances. But there’s another government-worker benefit also wreaking fiscal havoc – free and heavily-subsidized retiree health insurance for state workers.

Illinois has promised $166 billion in retiree health insurance benefits to public-sector workers over the next 38 years. Actuaries say the state should have $73 billion invested today so it can safely make those payments in the future. The problem is, the state hasn’t set aside anything at all.

That $73 billion hole is yet another financial time-bomb – one that’s been totally ignored thus far by Illinois’ lawmakers, civic leaders and the media. Unfunded healthcare promises have grown 80 percent in the past decade and are now compounding Illinois’ state and local pension crises.



Illinois courts have ruled that public employee health obligations, like pension benefits, cannot be impaired. Unlike pensions, however, nothing is set aside and invested to cover that future expense. The liability is entirely unfunded, which is called a “pay-go” system. Instead of setting aside money for future costs, the state simply pays retiree healthcare costs as they are incurred. Growing future costs are left to future budgets.

Expect those annual payments for retiree health benefits to further squeeze Illinois’ budgets as the bills come due. Payments by the state – meaning taxpayers – will rise from $1 billion today to nearly $6 billion in the future to meet the state’s yearly retiree health insurance obligations.

Officially, retiree health and pension costs are already set to consume more than a quarter of the state budget over the next 30 years. But the state’s official numbers grossly underestimate Illinois’ true retirement costs. If the real cost of pensions and retiree health insurance were properly measured and paid for, they would consume an untenable 50 percent of the state’s annual budget.

That fact shows that without massive reforms, retirement costs are going to damage Illinois beyond repair. The state has no choice but to dramatically reduce its unfunded obligations.

Illinois’ “other” retirement debt
Illinois provides 567,000 public sector workers and retirees with subsidized retiree health insurance benefits. Beneficiaries include state employees and retirees (including state workers, public university employees, judges, and lawmakers), who participate in the State Employee Group Insurance Program (SEGIP); teachers in the Teachers’ Retirement Insurance Program (TRIP); and community college employees in the College Insurance Program (CIP).



SEGIP provides the most lucrative health insurance benefits of the three systems. SEGIP members with 20-plus years of service receive free health insurance during retirement. (The system current provides state workers with a 5 percent discount on their retiree health insurance for every year of work, maxing out at 100 percent for 20 years of work. Retirees who retired before 1998 earned free health insurance after just 8 years of service – the minimum vesting requirement.)

According to a 2011 study by Mercer on behalf of the Commission on Government Forecasting and Accountability (COGFA), most SEGIP members end up receiving free insurance: “Roughly three fourths of current retirees have at least twenty years of service and, therefore, do not have to pay contributions.”

Wirepoints also analyzed the 2018 state employee pension database and found that 73 percent of State Employee Retirement System (SERS) members have worked the requisite years to get free retiree health insurance.

The present value of that benefit for career workers is worth $200,000 to $500,000 per retiree, depending on the pension tier and age of the employee, according to a 2016 FOIA obtained from the Governor’s office.



(Retiree health insurance benefits contribute to the $110,000 average annual compensation packages received by state AFSCME workers. For details, see: Six facts Pritzker can’t ignore when negotiating AFSCME’s contract.)

Free retiree health insurance provided entirely at the employer’s expense is a benefit that’s rare in the public sector and almost unheard of in the private sector.

The Mercer study found that, on average, state county and city governments across the nation who offer retiree insurance benefits only pay about half of their employee’s premiums during retirement.

Mercer also found that most small- and medium-sized employers in the private sector do not offer retiree health benefits. And the 25 percent of large employers (500-plus employees) who do offer retiree health insurance benefits only pay half the cost of insurance, on average.



Members of TRIP and CIP get different, less generous benefit packages, but still receive insurance subsidies worth 50 to 75 percent of their premium costs – subsidies paid for by taxpayers.

A growing budget problem
Illinois operates on a pay-go basis for retiree health insurance, meaning it falls far short of paying the actuarially required contribution, or ARC, for health benefits. The ARC is the amount actuaries say the state should pay to cover both current year costs and some of the unfunded liability.

For example, in 2008 the state funding shortfall already totaled $42 billion. But instead of paying the ARC of $3 billion, Illinois contributed just $700 million – the amount needed to pay only that year’s benefits.

That same underpayment has continued since then. The state has consistently underfunded its ARCs, leading to an average payment shortfall of about $3 billion a year.



Those yearly shortfalls, along with recent changes in accounting, have pushed up Illinois’ retiree health insurance debt to $73 billion.



The rising shortfall matters since the annual pay-go cost of retiree healthcare is growing rapidly. By 2025, the pay-go amount will total $3 billion a year. By 2032 it will exceed $4 billion.

In total, the pay-go amounts will grow by 5 percent annually through 2045. The state has nothing set aside to take any of that additional pressure off of the budget.



Illinois is not alone in treating retiree healthcare as a pay-as-you-go cost. Fifteen states have absolutely nothing set aside to pay retiree healthcare. And over two dozen more have less than a quarter percent of the money they need set aside, according to data collected by the Pew Charitable Trusts.

But the extent of underfunding is extreme in Illinois. That’s particularly true when comparing the unfunded retiree health care debt per capita in Illinois versus our neighboring states.

As of 2015, each Illinoisan was on the hook for more than $4,100 in unfunded retiree health benefits, the 6th-most in the nation. That amount is double the national average and quadruple what Kentuckians owe. And it’s many, many times more than what residents in states like Wisconsin and Indiana are burdened with. It’s another debt that makes Illinois noncompetitive vis-a-vis its neighbors.



But that’s based on older numbers. As of 2016, Illinoisans are burdened with $5,700 each in state retiree health insurance debts. That’s more than $15,000 for every household in the state. (Liabilities increased significantly between 2015 and 2016 due to state implementation of GASB 74 and 75. Liabilities also increased due to the state’s failure to pay for $1.1 billion in liabilities in 2016 due to the budget impasse.)

The total cost of state retirements
When you add up what Illinois owes in pension and retiree health debt – valued under more realistic assumptions – it becomes crystal clear that Illinois’ situation is far more dire than currently reported by the state, the media or rating agencies.

J.P. Morgan recently looked at the amount states should be paying toward pensions and retiree health care to be actuarially sound – as opposed to what states currently pay. They found Illinois to be the outlier nationally, with more than 50 percent of its budget needed to reach an actuarially sound position.

By comparison, 37 states need only 15 percent or less of their budgets to be considered sound.



Conclusion
J.P. Morgan’s assessment is another profound indicator of just how bankrupt Illinois has become. It’s untenable.

And that analysis doesn’t even include Chicago’s $71 billion in pension shortfalls (Moody’s estimates), as well as tens of billions more in other local government retirement debts.

This mess is the result of handing out unaffordable benefits at all levels of government for decades. The state alone has allowed total pension benefits to grow over 1,000 percent over the last 30 years – a pace far faster than taxpayers could ever afford.

Layer on top of that free and heavily subsidized health insurance benefits and it’s no wonder Illinois faces one of the most extreme crises of any state in the nation.

Barring massive reforms that reduce those liabilities, expect everyone in Illinois to lose.

* * *

Download a PDF copy of the report

https://www.zerohedge.com/news/2018...illion-unfunded-state-retiree-health-benefits
 

Fatrat

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^^^National Health Care coming soon to you too.^^^
 

Thecrensh

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Notice it's always about fleecing the tax payer / land owner. Never about obscene costs or charges. Just another scam.
Exactly. The big governmenters never seem to associate government involvement with price increases...yet it always does. Or, more correctly, that's exactly their plan...
 

edsl48

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"I Thought This Deal Was Absurd, But Pensions Are Piling In..."


by Tyler Durden
Fri, 12/07/2018 - 17:05
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Authored by Simon Black via SovereignMan.com,
We have been talking about the pension crisis for years now. It’s without a doubt one of the biggest, financial disasters.
These pools of capital, responsible for paying out retirement benefits, are terribly underfunded. So anyone depending on a pension in their retirement years should seriously consider a Plan B – and sooner rather than later.
We aren’t alone in sounding the alarm on pensions.

The World Economic Forum reported that in 2015, worldwide pensions were underfunded by $70 TRILLION. That is larger than the top 20 economies in the world, combined.
In the US alone, federal, state, and local government pensions are $7 trillion short on the funding they need to pay what they have promised.
And none of this includes Social Security’s almost $50 trillion of unfunded obligations.
Even the private sector isn’t in great shape. US corporate pensions are a combined $553 billion in the hole. And one quarter of those funds are expected to go broke within a decade.
Most pensions require about an 8% annual return to break even (and make all the payments they’ve promised)… historically, these funds could achieve decent returns with a mix of conservative, fixed-income investments. But after a decade of ultra-low interest rates, achieving an 8% return in bonds would be a dream.
So these pensions are forced to take on more and more risk just to break even (oh, and deal with corrupt government officials)…
They’re essentially taking the teachers’ and firemen’s retirement money and betting it on black… hoping to dig themselves out of the enormous hole they’re in.
That means buying more stocks (at what may be the top of the market)… and investing in global real estate (another hugely inflated asset)…
Remember, pension funds are supposed to be some of the most conservative investors on the planet. Millions of people rely on them to make prudent investments to provide them with a decent income in retirement, not to make large, risky bets hoping for outsized returns.
But pensions are desperate. And they’re swinging for the fences just to make ends meet.
Pensions have nearly doubled their allocation to real estate since 2006 (investing an extra $120 billion into the sector).
But a certain type of real estate investment called “opportunistic investments” has grown sixfold over the same period.
“Opportunistic investments” is just a fancy term for being a real estate developer. In other words, pension funds are basically building spec properties now.
At least with a normal real estate investment, the funds can buy an asset and earn a reliable income stream. But now they’re buying speculative land, developing it (often taking on debt to do so) and hoping to flip it to someone at a higher price somewhere down the line.
This is wrong for so many reasons.
Remember that outrageous real estate deal I was offered back in July?
A big bank was raising $500 million to buy a building in midtown Manhattan… then they wanted to spend another $1,000 per square foot on renovations.
I immediately passed. Why would I buy a building in one of the most expensive cities in the world, at a market high… then spend a fortune (and several years) renovating the property… then pray we don’t have a market downturn so I can sell the property to a higher bidder.
Well, now we know who likely took the $500 million allocation – pension funds.
Calstrs, one of the largest pension funds in the US, has allocated $5.7 billion to opportunistic real estate. And they think they’re going to make 13% to 30% on these investments (compared to 6% to 9% with traditional real estate).
What could possibly go wrong here?
Ten years into a raging bull market, pension funds aren’t just buying expensive real estate… They are buying expensive real estate and taking on debt to develop it. And they are hoping that years from now when the property is finished, the market will still be in a position to buy what they have built at a higher price.
Everything needs to go right for pensions to make money on these investments. But I see a lot more that can go wrong.
I was able to pass on this deal. But the millions of Americans depending on a pension for retirement don’t have that luxury… they’re at the mercy of the pension managers to make decisions for them.
And they are not making sound decisions today.
 

Joe King

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And they are not making sound decisions today.
Have they ever? Obviously not, for if they had, they wouldn't be in the situation of having to swing for the fences just to keep the game alive.
But pensions are desperate. And they’re swinging for the fences just to make ends meet.
That's the equivalent of a broke retiree using his last $100 to buy lottery tix.
 

mtnman

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When it all falls apart, around where I live you'll see a bunch of brand new pickups for sale!
 

Alton

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Idiot congress! Pension bailout?!? BURN 'EM AT THE STAKE!!!
 

searcher

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Retirees thought GE would take care of them forever, but it didn't


Bloomberg
Natasha Rausch
1 hr ago

Back in 1971, when he went to work at a General Electric Co. plant in upstate New York, John Phelps probably wasn’t naive in believing that the company would take care of him to the grave.

That was reasonable in those days, when so many jobs in the U.S. still came with generous long-term benefits. And in fact, Phelps clocked out in 2013 at age 64 with a pension, a rare thing in the 21st century.

But he feels ripped off. GE has cut retiree health-care benefits and on Dec. 7 slashed to a penny the dividend many former employees once relied on as income. He doesn’t care that GE is swimming in debt and other woes.

“GE used to promise us, ‘You’ll never have to worry about anything,’ and then they started taking things away,” said Phelps, a founder of Retirees Against GE Health Care Changes. “People are scared.”

When his group started 19 months ago, it was focused on curbing the erosion of medical benefits. Now it has another worry: GE’s defined-benefit pension plan is underfunded in the U.S. by almost $30 billion. That’s adding to retirees’ concerns even as GE takes steps to shore up the plan.

Phelps said the group’s 1,800 members know they’re trying to climb a big hill. Courts have rejected two lawsuits claiming GE breached its fiduciary duty when in 2015 it started ending health plans that supplemented Medicare for nearly 200,000 retirees and their dependents. Instead, it gives them each $1,000 a year to help cover the co-pays and prescription drugs that Medicare doesn’t.

That’s still more than many older Americans get. But the stipend isn’t enough to keep up with the cost of coverage, Phelps said.

A survey by his group found two-thirds of respondents ran out, with a third of those exhausting the stipend in the first half of the year. Mary Anna Feitler, 75, who worked at a GE plant in Indiana for almost 27 years, said out-of-pocket medical expenses for her and her husband have grown by about $5,000 a year to $22,000.

“We’re doing OK,” Feitler said, but “I don’t know whether to anticipate that it’s going to get worse.”

That’s the concern, as the troubled company continues to look for ways to cut costs. Its market value has plunged by more than $200 billion since the end of 2016, driven down by a slumping power market, cash-flow shortfalls and the weight of more than $100 billion in debt.

The change to the retiree medical plan significantly reduced GE’s costs for that benefit, to $35 million last year from $1.26 billion in 2011.


© Bloomberg Health Conscious

The move was “consistent with trends among larger companies and allowed GE to offer greater choice in coverage while striking a balance among our obligations to employees, retirees and shareowners,” a spokeswoman said in an emailed statement.

Fewer businesses give health benefits to retirees. In 1988, 66 percent of large companies did, according to the Kaiser Family Foundation, and by last year it was down to 25 percent.

That’s part of a long-running shift in the U.S. from “stakeholder capitalism to shareholder capitalism where maximizing shareholder value has become the dominant ethos,” said Rick Wartzman, author of “The End of Loyalty: The Rise and Fall of Good Jobs in America.”

At GE, the pullback started in 2011, when then-Chief Executive Officer Jeff Immelt announced that the pension would be closed to new employees. Cuts to the supplemental health benefits followed. Meanwhile, Immelt began ramping up GE’s buybacks, spending $23 billion in 2015 and $22 billion in 2016, and ignoring pension obligations.

For 72-year-old Garland Steele, who worked 28 years at GE, the impact of the reduced benefit is one thing. He and his wife, facing at least $7,000 more in medical costs every year, can manage by cutting back on things like traveling and eating out.

As for what he described as GE’s betrayal? That’s more difficult. His generation, Steele said, was “very loyal” to the 126-year-old company.

“We had a contract,” he said. “It used to be if you had a contract, people stuck to it, and these people didn’t.”

http://www.msn.com/en-us/money/comp...em-forever-but-it-didnt/ar-BBRaqQu?ocid=ientp
 

mtnman

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Another load of horse shit. GE never promised anything. THE UNION FORCED GE INTO THOSE CONTRACTS. Thank your union.
 

Son of Gloin

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Another load of horse shit. GE never promised anything. THE UNION FORCED GE INTO THOSE CONTRACTS. Thank your union.
Uhh, yeah, bullpucky. The union negotiated for wages and benefits, GE agreed to them.
 

GOLDBRIX

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In my young investing days GE was seen like a self-made mutual fund with it's vast spread of products, technologies and divisions.
Now, you could find an investment article that would lament the same problems shareholders now see compared to the days of the 60s , '70s, & 80s.
The ONLY fatcats left are the CEO and board members, and their "Golden Parachutes" are showing signs of tarnish. Immelt got out made his hay while the sunshined and just started to set. IMO
 

mtnman

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Uhh, yeah, bullpucky. The union negotiated for wages and benefits, GE agreed to them.
I grew up about 10 miles from GE Appliance Park. That's where GE used to build ALL the appliances. MAJOR employer in Louisville KY. I remember the strikes. I remember the months long shutdowns. I remember the Unions. They used the force of bankruptcy to force GE to sign contracts they knew were not sustainable. Now it comes back to bite the Union members who walked those picket lines, in the ass.
 

Son of Gloin

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I grew up about 10 miles from GE Appliance Park. That's where GE used to build ALL the appliances. MAJOR employer in Louisville KY. I remember the strikes. I remember the months long shutdowns. I remember the Unions. They used the force of bankruptcy to force GE to sign contracts they knew were not sustainable. Now it comes back to bite the Union members who walked those picket lines, in the ass.
Yeah, my father in law was a steelworkers union member. He had the opinion that the unions were in collusion with the steel makers. Whenever orders slowed way down, the unions would get together with the plant brass and collude to put the workers on strike so the plants could shut down during low volume production cycles. His opinion, no proof. Having said that, it seems like the steel workers union also negotiated the workers out of jobs, after a number of decades.
 

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Your Pension Is a Lie: There's $210 Trillion Of Liabilities Our Government Can't Fulfill



John Mauldin
Contributor



Shutterstock
In the US, we have two national programs to care for the elderly. Social Security provides a small pension, and Medicare covers medical expenses. All workers pay taxes that supposedly fund the benefits we may someday receive.
The problem is that's not actually true. Neither of these programs is comprehensive.
The End of Government Entitlements
Living on Social Security benefits alone is a pretty meager existence.



Medicare has deductibles and copayments that can add up quickly. Both programs assume people have their own savings and other resources. Despite this, the programs are crucial to millions of retirees, many of whom work well past 65 just to make ends meet.
Having turned 68 a few days ago, I guess I’m contributing a bit to the trend
Limited though Social Security and Medicare are, we attribute one huge benefit to them: They’re guaranteed. Uncle Sam will always pay them—he promised. And to his credit, Uncle Sam is trying hard to keep his end of the deal.
YOU MAY ALSO LIKE

Uncle Sam’s Debt Nightmare
In fact, Uncle Sam is running up debt to do so. Actually, a massive amount of debt:
Federal debt as a percentage of GDP has almost doubled since the turn of the century. The big jump occurred during the 2007–2009 recession, but the debt has kept growing since then. That’s a consequence of both higher spending and lower GDP growth.
In theory, Social Security and Medicare don’t count here. Their funding goes into separate trust funds. But in reality, the Treasury borrows from the trust funds, so they simply hold more government debt.
Today it looks like this:
  • Debt held by the public: $14.4 trillion
  • Intragovernmental holdings (the trust funds): $5.4 trillion
  • Total public debt: $19.8 trillion
Total GDP is roughly $19.3 trillion, so the federal debt is about equal to one full year of the entire nation’s collective economic output. That total does not also count the $3 trillion-plus of state and local debt, which in almost every other country of the world is included in their national debt numbers.
Including state and local debt in US figures would take our debt-to-GDP above 115%... and rising.
Just wait. We’re only getting started.
$210 Trillion Worth of Unfunded Liabilities
An old statute requires the Treasury to issue an annual financial statement, similar to a corporation’s annual report. The FY 2016 edition is 274 enlightening pages that the government hopes none of us will read.
Among the many tidbits, it contains a table on page 63 that reveals the net present value of the US government’s 75-year future liability for Social Security and Medicare.
That amount exceeds the net present value of the tax revenue designated to pay those benefits by $46.7 trillion. Yes, trillions.
Where will this $46.7 trillion come from? We don’t know.
Future Congresses will have to find it somewhere. This is the fabled “unfunded liability” you hear about from deficit hawks. Similar promises exist to military and civil service retirees and assorted smaller groups, too.
Trying to add them up quickly becomes an exercise in absurdity. They are so huge that it’s hard to believe the government will pay them, promises or not.
Now, I know this is going to come as a shock, but that $46.7 trillion of unfunded liabilities is pretty much a lie. My friend Professor Larry Kotlikoff estimates the unfunded liabilities to be closer to $210 trillion.
Pensions Are a Lie
Many Americans think of “their” Social Security like a contract, similar to insurance benefits or personal property. The money that comes out of our paychecks is labeled FICA, which stands for Federal Insurance Contributions Act. We paid in all those years, so it’s just our own money coming back to us.
That’s a perfectly understandable viewpoint. It’s also wrong.
A 1960 Supreme Court case, Flemming vs. Nestor, ruled that Social Security is not insurance or any other kind of property. The law obligates you to make FICA “contributions.”
It does not obligate the government to give you anything back. FICA is simply a tax, like income tax or any other. The amount you pay in does figure into your benefit amount, but Congress can change that benefit any time it wishes.
Again, to make this clear: Your Social Security benefits are guaranteed under current law, but Congress reserves the right to change the law. They can give you more, or less, or nothing at all, and your only recourse is the ballot box.
Medicare didn’t yet exist in 1960, but I think Flemming vs. Nestor would apply to it, too. None of us have a “right” to healthcare benefits just because we have paid Medicare taxes all our lives. We are at Washington’s mercy.
I’m not suggesting Congress is about to change anything. My point is about promises. As a moral or political matter, it’s true that Washington promised us all these things. As a legal matter, however, no such promise exists. You can’t sue the government to get what you’re owed because it doesn’t “owe” you anything.
This distinction doesn’t matter right now, but I bet it will someday. If we Baby Boomers figure out ways to stay alive longer, and younger generations don’t accelerate the production of new taxpayers, something will have to give.
If you are dependent on Social Security to fund your retirement, recognize that your future is an unfunded liability—a promise that’s not really a promise because it can change at any time.
 

Son of Gloin

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Tax or contribution, I plan/hope to suck as much of my money back out of government that I can, till it’s all belly up. That’s the plan, anyway.
 

mtnman

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Your Pension Is a Lie: There's $210 Trillion Of Liabilities Our Government Can't Fulfill



John Mauldin
Contributor



Shutterstock
In the US, we have two national programs to care for the elderly. Social Security provides a small pension, and Medicare covers medical expenses. All workers pay taxes that supposedly fund the benefits we may someday receive.
The problem is that's not actually true. Neither of these programs is comprehensive.
The End of Government Entitlements
Living on Social Security benefits alone is a pretty meager existence.



Medicare has deductibles and copayments that can add up quickly. Both programs assume people have their own savings and other resources. Despite this, the programs are crucial to millions of retirees, many of whom work well past 65 just to make ends meet.
Having turned 68 a few days ago, I guess I’m contributing a bit to the trend
Limited though Social Security and Medicare are, we attribute one huge benefit to them: They’re guaranteed. Uncle Sam will always pay them—he promised. And to his credit, Uncle Sam is trying hard to keep his end of the deal.
YOU MAY ALSO LIKE

Uncle Sam’s Debt Nightmare
In fact, Uncle Sam is running up debt to do so. Actually, a massive amount of debt:
Federal debt as a percentage of GDP has almost doubled since the turn of the century. The big jump occurred during the 2007–2009 recession, but the debt has kept growing since then. That’s a consequence of both higher spending and lower GDP growth.
In theory, Social Security and Medicare don’t count here. Their funding goes into separate trust funds. But in reality, the Treasury borrows from the trust funds, so they simply hold more government debt.
Today it looks like this:
  • Debt held by the public: $14.4 trillion
  • Intragovernmental holdings (the trust funds): $5.4 trillion
  • Total public debt: $19.8 trillion
Total GDP is roughly $19.3 trillion, so the federal debt is about equal to one full year of the entire nation’s collective economic output. That total does not also count the $3 trillion-plus of state and local debt, which in almost every other country of the world is included in their national debt numbers.
Including state and local debt in US figures would take our debt-to-GDP above 115%... and rising.
Just wait. We’re only getting started.
$210 Trillion Worth of Unfunded Liabilities
An old statute requires the Treasury to issue an annual financial statement, similar to a corporation’s annual report. The FY 2016 edition is 274 enlightening pages that the government hopes none of us will read.
Among the many tidbits, it contains a table on page 63 that reveals the net present value of the US government’s 75-year future liability for Social Security and Medicare.
That amount exceeds the net present value of the tax revenue designated to pay those benefits by $46.7 trillion. Yes, trillions.
Where will this $46.7 trillion come from? We don’t know.
Future Congresses will have to find it somewhere. This is the fabled “unfunded liability” you hear about from deficit hawks. Similar promises exist to military and civil service retirees and assorted smaller groups, too.
Trying to add them up quickly becomes an exercise in absurdity. They are so huge that it’s hard to believe the government will pay them, promises or not.
Now, I know this is going to come as a shock, but that $46.7 trillion of unfunded liabilities is pretty much a lie. My friend Professor Larry Kotlikoff estimates the unfunded liabilities to be closer to $210 trillion.
Pensions Are a Lie
Many Americans think of “their” Social Security like a contract, similar to insurance benefits or personal property. The money that comes out of our paychecks is labeled FICA, which stands for Federal Insurance Contributions Act. We paid in all those years, so it’s just our own money coming back to us.
That’s a perfectly understandable viewpoint. It’s also wrong.
A 1960 Supreme Court case, Flemming vs. Nestor, ruled that Social Security is not insurance or any other kind of property. The law obligates you to make FICA “contributions.”
It does not obligate the government to give you anything back. FICA is simply a tax, like income tax or any other. The amount you pay in does figure into your benefit amount, but Congress can change that benefit any time it wishes.
Again, to make this clear: Your Social Security benefits are guaranteed under current law, but Congress reserves the right to change the law. They can give you more, or less, or nothing at all, and your only recourse is the ballot box.
Medicare didn’t yet exist in 1960, but I think Flemming vs. Nestor would apply to it, too. None of us have a “right” to healthcare benefits just because we have paid Medicare taxes all our lives. We are at Washington’s mercy.
I’m not suggesting Congress is about to change anything. My point is about promises. As a moral or political matter, it’s true that Washington promised us all these things. As a legal matter, however, no such promise exists. You can’t sue the government to get what you’re owed because it doesn’t “owe” you anything.
This distinction doesn’t matter right now, but I bet it will someday. If we Baby Boomers figure out ways to stay alive longer, and younger generations don’t accelerate the production of new taxpayers, something will have to give.
If you are dependent on Social Security to fund your retirement, recognize that your future is an unfunded liability—a promise that’s not really a promise because it can change at any time.
and now you see why the .gov want you un-armed. Take away their SS and you'll have hundreds of thousands pissed off old guys with rifles extracting revenge on congress critters. Rather go out with a BANG than starve.
 

edsl48

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What's Worse Funded Than Teamsters' Central States? Chicago's Pensions


Elizabeth Bauer
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RetirementI write about retirement policy from an actuary's perspective.



view of Chicago's skyline from rear of train backing into station.GETTY

Before the Christmas holidays, I focused extensively on the problems facing Taft-Hartley multi-employer pensions and the PBGC multi-employer pension fund. Although I'll be returning to the topic, with a Chicago mayoral election coming up soon (February 26th, no incumbent candidate, 15 candidates, April 2 runoff election if needed), I am taking some time to address the pension issues that next mayor will have to face.
To begin with a comparison:
The Teamsters/Central States' pension plan, projected to become insolvent in 2025, is 38% funded at a 5.5% valuation interest rate.



The four city of Chicago-controlled pension plans, in total, are funded at a rate of 27%, using a valuation rate of 7% (which, as a reminder, means that on an apples-to-apples basis, they'd be even more poorly funded). (An Illinois Policy Institute article from October 2018 gives an overview of the numbers; there are additional Chicago pension funds for teachers, park district and transit workers that are not included as city of Chicago funds.)
Of course, one might say that Chicago has the ability to tax its residents, and the Teamsters do not. But in the same way as the Teamsters cannot simply increase the contributions required of its participating employers without creating genuinely intolerable burdens, so too, Chicago can't readily solve its troubles with taxation. In 2018, Chicago's contribution to these funds totaled $1.02 billion and that figure is scheduled to increase to $1.2 billion in 2019 based on a contribution schedule agreed on in 2017. For reference, the city's total 2019 spending plan is $10.7 billion. Do the math: that's 10% of the city budget being spent on pensions.

But it doesn't stop there: as part of a contribution plan which is meant to ensure the city's pension plans achieve 90% funding by 2058, and which enables them to use the more advantageous expected-return-on-investments valuation interest rate, contributions are slated to double in five years' time, reaching $2.1 billion in 2023 and continuing thereafter at the level percentage of payroll necessary for each plan to reach that 90% funding target. If one assumes that the city budget increases at the same inflation rate that it assumes for its valuations, 2.5%, then this means that in 2023, 18% of city spending will be on pensions . Where will that extra money come from? Or, alternatively, what city spending will be cut in order to fund those pensions?
And, lest one think that the city can simply pare back its funding ambitions, those contributions are not simply necessary to meet some arbitrary future funding requirement. Looking specifically at the largest of these plans, the Municipal Employees' Annuity and Benefit Fund, funded coincidentally at the same 27% as the city plans in total, if the city were to keep contributions at their current level, increasing them only with inflation, based on the data in the most current actuarial report, and ignoring this past year's market downturn, this plan would become insolvent in 2027, depleting the pension fund entirely and becoming a "pay as you go" plan, that is, paying benefits directly out of city funds.
But wait, there's more!
One might be tempted to shrug this off: Chicago. Machine politics. It was ever thus and will always be, and indeed, reviewing past actuarial reports (to their credit, available online as far back as the 80s), for most of the plan's history, the Municipal Employees' plan's funding level was mediocre. But the plan had made significant strides in the 1990s, and, as recently as 2000, the plan was 94% funded (using, of course, the expected-investment-return method of valuation interest rate determination).
What happened?
Here's a simple progression of funded status over the past two decades ending at the 2017 actuarial report. (Note that the figures are hand-typed from the relevant valuation reports; I will of course correct any errors readers might notice.)

MEABF funded status 1997 - 2017OWN CALCULATIONS
Why the funded status dropped so dramatically is best viewed by looking at the progression of assets and liabilities --

MEABF assets and liabilities, 1997 - 2017OWN WORK
as well as the plan's contributions (the dip in 2014 is not a typo on my end but reflects benefit cuts which were restored in 2015 when the Illinois Supreme Court declared these changes to have been unconstitutional).

MEABF contributions, 1997 - 2017OWN WORK
To do some math, the plan liabilities increased by a factor of three over two decades' time, at a point when the relevant inflation factor was only 1.5. But until the implementation of the new funding plan in 2017, contributions stayed level, beginning and ending this two-decade period at $157 million.
And those liabilities did not increase due to some unavoidable misfortune. Yes, there's an extent to which assumption changes, in particular, the decline in valuation interest rates from 8% in 1997 to 7% in 2017 (both with the same net-of-inflation assumption, since the inflation assumption likewise dropped from 3.5% to 2.5%), played a role. And assets have decreased, but not due to a sustained investment loss so much as because those assets were being used to pay benefits.
But that's only a small part of the explanation.
At present, all employees hired before 2011, are eligible to retire at age 55 with 10 years of service, for the "money purchase" formula, or as young as age 50, with 30 years of service, for the traditional formula, which accrues benefits at the rate of 2.4% per year of service up to 80% pay replacement after 33 years of employment, in either case with a guaranteed 3% compounded annual benefit increase, plus benefits for spouses and children upon death, and disability benefits, and a special extra-generous formula for elected officials, in exchange for an employee contribution of 8.5% of salary (with 3% extra for elected officials), which essentially replaces their FICA contribution but for considerably larger benefits.
But the actuarial report contains a litany of benefit increases. In 1983, the guaranteed 3% benefit increases were added. In 1985, accrual factors of 1.8 - 2.0 - 2.2 - 2.4% by years of service replaced existing lower factors. In 1986, benefit caps for survivor benefits were removed. In 1987, the penalty factors for early retirement were halved, and exemptions added for long-service employees. In 1990, the accrual rate was changed to a uniform 2.2% for all years of service that would have previously accrued at 1.8 or 2.0%, the service requirements to be exempt from early-retirement reductions were made more generous, and the more generous elected officials' benefits were added. In 1992, a special early-retirement incentive was created with extra benefits for a half-year period. In 1997, eligibility for early retirement was extended again, minimum benefit levels were increased, and another half-year early retirement incentive was created. In 1998, the 3% increases were extended to certain groups which had previously been ineligible, and survivor benefit provisions were increased. In 2002, the accrual rate was increased from 2.2% to 2.4% for all service years, and the maximum benefit increased from 75% to 80% of final pay. In 2004, another early retirement incentive plan was created. Only after 2004 did the repeated benefit increases come to an end. It is whiplash-inducing to see the full list of increases, which continued to grow the liabilities year after year even after the spending spree of increases had come to an end.
All of which means that, while blame can't be assigned to "contribution holidays" as happened at the state level, none of these increases should have been legislated without the city increasing contributions at the level needed to fund them.
As always, I invite you to share your comments at JaneTheActuary.com!
 

EO 11110

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Yeah, my father in law was a steelworkers union member. He had the opinion that the unions were in collusion with the steel makers. Whenever orders slowed way down, the unions would get together with the plant brass and collude to put the workers on strike so the plants could shut down during low volume production cycles. His opinion, no proof. Having said that, it seems like the steel workers union also negotiated the workers out of jobs, after a number of decades.
exactly right. the unions went through a wave of consolidation into mega-unions. all of which are controlled by globalist vipers

i'm in one of them. they cried for tariffs for decades --- then implored their membership to 'get out the vote' in support of uber offshore whore, hillary clinton.....while attacking trump

disgusts me that my dues go to support the shysters
 

Fatrat

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It would have been nice if my pension funds bought physical gold and silver, I'd be freaking rich....
 

the_shootist

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Fed will have to print trillions and trillions of paper, gold and silver will go to da moon alice
Gold and silver will be worth the same as it always was. You'll still be able to walk into a clothing store and buy a nice suit for the cost of a $20 gold piece. The dollar will be worth shit!
 
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I knew Illinois was bad, now I know why.

Iowa's IPER's pension program is similar, but quite different at the same time.

Max benefit is after 35 years of service .
Max benefit is 65% of the average 5 highest years. (Means you get 58%-64% of your final year's wages)
Zero cost of living/inflation adjustment.
Early retirement with 63.0% of average 5 highest years at 55 if you have 33 years of service.
Early retirement with 25.2% of average 5 highest years at 55 if you have 32 years of service!
Children get no benefits.
Spouse CAN get pension once you die, payment amount adjusted downward from day one based on their actuarial change in payment expectancy.

The same, but clearly different!

How to fix Illinois?
I generally don't like taxes, but because you can't legally reduce unmanageable benefits... I would put a large tax on any defined pension benefits earned in Illinois (preferably limited to government pensions) regardless of the current residency of the beneficiary. Every year payments go up 3%, the tax goes up 3%. Should be "constitutional" even by Illinois standards.
:bomb 1:

If people getting pensions left Illinois they would still have to pay and would have no vote to soften politician's resolve. :-)
If taxing former resident's is ruled unconstitutional that's fine, more "retirees" would leave, allowing amendment of the constitution. (Plus you could ask how the US federal government gets away with it!)
 

Uglytruth

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Anyone notice late 2020's / 2027 time frame for everything to crash all at once?
Pensions, SS, everything about 70 years AFTER the boomers.........
Giant reset?
Majority of boomers dead.
Low replacement birth rates for generations.
Middle class gone.
Society firmly entrenched into poverty / servitude to the banksters.
Nanny state controlling every aspect of your life.

I luv reading these articles by actuary's. They always point out all these facts & figures like they are psychic making it seem like they knew this all along but what...... never had a voice to get that message out? Never said anything when there was still time?
 
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Never said anything when there was still time?
I understand what you're saying, but sometimes actuary's are wrong. People's behavior changes. Migration patterns change. Life expectancy changes.
Plus, most people don't care. They wouldn't lift a finger to make the world better unless it was making it better for them. Sometimes, for them only. I've spoken to people who would hurt themselves and their kids as long as someone they despise is hurt too. Sad but true.
 

Thecrensh

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Anyone notice late 2020's / 2027 time frame for everything to crash all at once?
Pensions, SS, everything about 70 years AFTER the boomers.........
Giant reset?
Majority of boomers dead.
Low replacement birth rates for generations.
Middle class gone.
Society firmly entrenched into poverty / servitude to the banksters.
Nanny state controlling every aspect of your life.

I luv reading these articles by actuary's. They always point out all these facts & figures like they are psychic making it seem like they knew this all along but what...... never had a voice to get that message out? Never said anything when there was still time?
And a NASA-documented 25% chance of a major meteor strike in 2029. Timing is everything. Maybe they know we won't be around (as we know it) after 2029?
 

EO 11110

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Anyone notice late 2020's / 2027 time frame for everything to crash all at once?
Pensions, SS, everything about 70 years AFTER the boomers.........
Giant reset?
Majority of boomers dead.
Low replacement birth rates for generations.
Middle class gone.
Society firmly entrenched into poverty / servitude to the banksters.
Nanny state controlling every aspect of your life.

I luv reading these articles by actuary's. They always point out all these facts & figures like they are psychic making it seem like they knew this all along but what...... never had a voice to get that message out? Never said anything when there was still time?
imo they will ease the burdens with inflation.