A recent report from Moody’s estimated that total unfunded pension liabilities — or the amount pension plans owe vs. what they have — across U.S. state public pension plans is forecast to increase 40% to $1.75 trillion through fiscal year 2017.
That’s trillion with a “t”!
In fact, by some accounts, that figure could be closer to $4.0 trillion when considering ALL state and local government pension programs.
Truthfully, I almost fell out of my chair when I read those numbers.What the hell happened?
A number of forces are guilty, including plans assuming an annual rate of return of 7.0% to 7.5%. That’s a big problem when the median pension plan returned just 0.52% in fiscal year 2016.
But it gets worse …
These unfunded liabilities keep getting bigger and bigger each year, because of low returns and a consistent trend of bad management.
Plus, an aging demographic is exacerbating the problem, with fewer workers paying for benefits.
In fact, it looks like California is soon to be in line for a TARP-like bailout, with that state’s total pension program (CalPERS) unfunded liability estimated at $950 billion.
The situation is also brewing in Dallas, with last year’s underfunded pension liability estimated at $1.2 billion. The situation is made worse following a 12.5% loss in the market during 2015.
So, who’s gonna pay for this mess?
You, the taxpayer, that’s who.
In fact, pension problems will likely impact every U.S. taxpayer at a mind-blowing rate. And that’s true even if they are not directly connected to state and local pension programs.
Think about this …
A key factor in Detroit’s bankruptcy was unaffordable pension costs. Other cities that have “gone under” in recent memory include: Vallejo, Stockton and San Bernardino.
And there are more trouble areas brewing, like Los Angeles, Chicago, New York, Philadelphia and New Jersey.
But state and local governments aren’t the only ones dealing with staggering underfunded pension plans: Many U.S. corporations are suffering, too.
Consider the following corporate underfunded pension liabilities …
General Motors (GM) at $18.1 billion
General Electric (GE) at $27.25 billion.
Alcoa (AA) estimated at 37% of total debt.
IBM at $10.4 billion, or 7% of its market capitalization and 29% of total debt.
Bottom line …
The growing amount of underfunded pension liabilities poses a real threat to U.S. growth and solvency in the years to come. According to my wave analysis, the pension crisis should reach full tilt by the end of 2017 and hurt a lot of people in the process. Real Wealth Report members will be fully prepared – will you?