Pension Crisis, a Ticking Time Bomb

Last week, I told you that Illinois wasn’t paying the $9.1 billion annual interest payment on its pension debt. But, after looking at the swelling U.S. state and local pension debt figures, that might prove to be small potatoes.

All told, U.S. states and local governments have about $2 trillion less than what they need to cover retirement benefits.

That’s not a typo: $2 trillion in the hole!

And the sad truth is that gap simply can’t be filled.

Result: Dramatic cuts in public services and potential upheaval of every sort as confidence in government falls and the sovereign debt crisis begins to take hold.

People are starting to see the writing on the wall. In fact, I’m now seeing an outpouring of people trying to retire early and take their lump-sum payment before the money is gone.

But this can create other problems, putting even more strain on already beleaguered pensions.

Take the Dallas Police and Fire Pension System, which Larry’s written about a number of times: The pension fund has been forced to temporarily block lump-sum withdrawals for fear of breaching a debt covenant, which would trigger a call on a $174-million loan this spring.

State and city workers have been stymied when they try to take lump-sum pension payouts and run.

This is the result of investment losses, inadequate contributions, and perks granted in boom times.

Pension plans, like the one in Dallas, simply made promises that are proving far too difficult to keep.

Benefits are also starting to get cut. The California Public Employees’ Retirement System (CALPERS) is starting to cut benefits to particular cities by more than 50%, for municipalities that fail to pay their premiums to CALPERS.

Case-in-point: East San Gabriel Valley Human Services Consortium left a $406,027 unpaid bill to the state system, and now CALPERS may slash the checks of 190 workers by 63 percent — the rate by which the agency has fallen short. As CALPERS deals with a growing gap between what’s been promised and what’s been set aside, I expect to see more and more benefits being slashed.

The bottom line: Larry’s cycles have been forecasting the looming sovereign debt crisis for years. As benefits are stripped away, confidence in government will fall, tensions will rise, leading us down a path where your money and liberty could be at stake.

Good Investing,



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Comments 18

  1. Dr. NT March 24, 2017

    I have been in the pension business for 35 years or since 1982. This does not affect the private pension plans of private corporation. It is only for government plans and the plan assets were not
    invested wisely through diversification. Instead, government plan assets were just invested in bank saving accounts and annuities, which did not cope up with inflation. So if you are not working with the government, you do not need to worry, unless your company is doing exactly the same as the government plan of investing. However, some states offer mutual funds options for pension asset investments.


  2. Billy March 19, 2017

    Hi Mike,
    Good article!!! Bottom Iine, this pension “disaster” has been brewing for decades as fat cat government bureaucrats along with greedy financial consultants and lawyers created worker pension contracts that were TOTALLY UNREALISTIC!!! So, like the Bond Bubble, this pension bubble IS and Will burst!!! We are already seeing this in New Jersey, where cost of living increases on public pensions have been frozen. It is not enough and simply unethical to balance this out of wack pension situation on the backs of new and existing workers ONLY!. What WILL happen, and we have said this for many years is that there WILL be CLAWBACKS on EXISTING pensioners!! There is simply NO WAY that private sector employees can keep paying these ridiculously written and implemented pension contracts!!! Just wait until the capital markets correct!!! If you think the returns on these funds look bad now, just wait!


  3. Gerald L Smith March 18, 2017

    First: State and local governments are only minimally covered under Federal laws. They are exempt from ERISA. There are few, if any, options that the Feds have to coerce pension behavior from them. Second: Actuaries and accountants can recommend but not require them to follow reasonable guidelines. Third and largest problem: Politicians control the pension committees. Their only goals are to be elected, acquire power and wealth, and be reelected. Pension contributions are part of the entity’s budget. To be reelected, a politician has to produce works that the public can see, i.e., new roads, new buildings, new parks, etc., while , at the same time reducing taxes. To do so, they cut or short everything else in the budget. For the pension plans that means: adopting unreasonable assumptions and making smaller (or no) contributions than those recommended. We saw this taking shape beginning in the 1970s and began warning them then that this would be a major problem in the future.


  4. siggy Latarski March 17, 2017

    Up until the Trump election, our government has failed us. Both parties neglected the good of the country & its’ citizens while maintaining power & perks while not having o follow the laws they pass for us. The masses simple went along for the ride and now wonder what the hell happened. special interests, personal agendas and a growing self segregated society have brought us to the edge of the cliff we are about to fall off. While he may get the blame, it won’t be trump’s fault but rather 40 years of neglect and poor & wasteful government.


    • Bill Thomas March 17, 2017

      The truth of the matter will become more evident then ever now that Trump is president. The establishment Repukes will be shown to be the Do Nothing big time spenders like the Democrats as they reject Trump’s budget to cut from the bloated federal budget. With a few exceptions, they are all in it for themselves. As I see it, Trump is the last chance to turn things back towards a more sane direction, but alas, with enemies on all sides including within his own party, it will be extremely difficult to make any progress. I see a economic collapse in our future. What comes afterwards will not be good. I would say that America is looking more like the Old Soviet Union everyday except the Soviet Union wouldn’t put up with a bunch of Politically Correct leftist fascists like we have here.


  5. John March 16, 2017

    We will all be on food stamps soon and forced to vote Democratic to keep the food stamps coming.


  6. Bob Hayes March 16, 2017

    Dear Mike, Everywhere I turn the dire predictions about financial ruin, potential nuclear war, dying oceans and global warming, makes one asked what the use in saving and investing, if there is no future to live in? I know that you can make money in both up and down markets. But why not just spend what we have while we can enjoy it.


  7. dennis March 16, 2017

    Almost all caused by gov unions!


  8. terry March 15, 2017

    Those “we pay for” make 30 % more, have easier jobs, better benefits? They call themselves “public servants” ? Pension with that ? We paid and they wasted away more. Ideas? Every fireman should be a paramedic, and if needed drive a police car to every accident scene. You have one driver and two other fireman to put out a fire and 2 cars with extra light strings ! Put swat teams on roofs before every protest. The extras should learn extra skills, drive busses and trains, randomly. Cities need to support other cities in need for a fee, including accounting, and desk help should be by 3 kiosk with helpful information for worker who does other work when not busy. Sell buildings, create small hotels or stores in great locations to generate money. Participate in homeland military reserves with the city getting that salary. Give gov hand outs to stores close to bus stops that have lower prices and enforce rules, to start.


  9. Norman Parker March 15, 2017

    I suppose as a Federal civil service retiree – my annuity is in just as bad a situation as are State & City retirees? There are two retirement plans; one is the FERS plan and the other (the one I am on) is the CSRS plans.

    Would appreciate any comments.

    Thanks, Norm


  10. Howard March 15, 2017

    Dear Mike

    Very sad to hear of Larry’s passing. It is a very big personal, family and professional loss to so many, It is never easy to accept loss and this seemed to happen suddenly.

    Kind regards to you all


  11. David S Papermaster March 15, 2017

    What is your opinion of TIAA that is a retirement plan for many university faculty?


  12. Terry Ray March 15, 2017

    A partial solution to the pension benefit payment problem would be to change to a hybrid contribution and payment structure for ultra high salaried public workers.
    A. Annual contribution amounts should be capped at a maximum annual amount of wages, e.g., the social security contribution maximum of $127,200. This change will not affect 99% of public workers, but will truncate the maximum annual pension payouts that go to ultra high income public workers. We would no longer have $250,000 annual pension payments. Annual maximum payments would be around $100,000.
    B. After the annual salary maximum has been reached, the remaining amount that would have gone to pension contributions would go to a 457 program or other deferred contribution program. Ultra high income workers would have to manage a portion of their retirement savings like private sector workers who have 401k’s and IRA’s.


  13. Isabelle Osiris March 15, 2017

    What me worry! They will just print more money and voila— problem solve!!!


  14. steve kassa March 15, 2017

    This is no surprise as Illinois ranks probably number one in regard to political mob style corruption. We have the most crooked politicians in the United States after all look Obama hailed from there and so did Hillary Clinton, not to say to list amongst the others who did requires high as these murders did


  15. dahhaoui idrissi March 15, 2017

    Thank you


  16. Frank Haffner March 15, 2017

    Why don’t you talk about the ones that are fully funded such as Wisconsin and how they were
    able to keep it solvent even though retires took a cut after 2008 for a number of years.


  17. David B. Renaud March 15, 2017

    This is absolutely ridiculous………How can this happen. Has America put a bunch of DUMBELLS in charge in this country. I know, it is probably due to sticky fingers……. They stole more than they needed too…..Shame on them !!!!
    However, let the rest of us suffer…… It was not their fault. They needed the money…….No crime here……… It is all
    part of the political way……(POLITICAL CORRECTNESS)……It will all work out OK,,,,,, Ha, Ha, HA…………………
    Third world country,,,, here we come……. It’s been nice to know you……..!!!!!