2016-04-21

Pension Crisis Begins in USA

The collapse of pensions in America has begun and the stock market and bond markets are at all-time highs. While private pensions are hit with demographic changes and low returns, many governments underfunded their pensions and made lavish promises as part of corrupt inside dealing between politicians and public union leadership. Cuts are going to hurt private retirees, but the big cuts will hit public pensions because taxpayers and citizens will choose government services over pensions for retired government workers.

The crisis begins in the private market, but bear in mind, the private unions' pensions are often better funded than public unions:

ZH: "This Is Going To Be A National Crisis" - One Of The Largest U.S. Pension Funds Set To Cut Retiree Benefits
As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it "projects" it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark.

...The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year.

As a result, Thomas Nyhan, executive director of the Central States Pension Fund said that the fund could become insolvent by 2025 if nothing is done. The fund currently pays out $2.8 billion a year in benefits according to Nyhan, and if the plan becomes insolvent it would overwhelm the Pension Benefit Guaranty Corporation (designed by the government to absorb insolvent plans and continue paying benefits), who at the end of fiscal 2015 only had $1.9 billion in total assets itself. Incidentally as we also pointed out last month, the PBGC projects that they will also be insolvent by 2025 - it appears there is something very foreboding about that particular year.

No comments:

Post a Comment