Monday, May 29, 2017

Pension Crisis

US Pension Crisis Picking Up Full Speed, by Martin Armstrong, 5/25/17

The Pension Crisis is serious and is the catalyst that will bring everything down. Nearly 600 State & Local governments are now in the hole and has reached nearly $1.2 trillion of unfunded pension liabilities in FY 2014. This reflects total pension liabilities of $4.798 trillion and total pension assets (or fiduciary net position) of $3.607 trillion.

This staggering number is nearly 25% of the annual GDP and accounts for roughly 97% of all public pension funds in the United States. California is raising taxes to cover the short-fall for now, but this is going nowhere fast. Government pensions are what destroyed the Roman Empire and history is going to repeat.

I have stated before that there are people on Capitol Hill who support confiscating all private 401K plans in the country and replacing them with an allotment monthly. We know what will happen to that one, so you better have something else besides cash. The government cannot meet the promises for its own employees and they will turn to increasing taxes and confiscating private property.


The reasons for this government pension crisis are many. Excessive government debt encouraged the Federal Reserve to lower interest rates and kept them low for decades. The US stock market was propped up by Federal money printing, but was wobbly for a decade. The 2008 mortgage meltdown ushered in the 2nd Great Depression.  Open borders and loose welfare immigration resulted in trillions in welfare costs.

Pension plans depend on more earnings and when earnings are not there, they fall behind on funding these pensions. Pensions use the defined benefit plan model and this model is unsustainable.  The vast majority of private sector plans are 401Ks, using the defined contribution model.  These are sustainable and government employee pensions need to be converted to 401k-type plans. These pension plans need to be terminated and individual balances need to be transferred to a defined contribution plan.  To adjust for near term retirees, a separate “age weighted” plan can be added. Government employers can continue to contribute to these defined contribution plans.  This isn’t hard.

Norb Leahy, Dunwoody GA Tea Party Leader 

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