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Your Pension Will Be At The Center Of America's Next Financial Crisis
Zero Hedge ^ | 03/26/2017 | Jeff Reeves via The Hill

Posted on 03/26/2017 5:30:43 PM PDT by SeekAndFind

Authored by Jeff Reeves via The Hill

I’m not a fan of the “greed is good” mentality of Wall Street investment firms. But the next financial crisis that rocks America won’t be driven by bankers behaving badly. It will in fact be driven by pension funds that cannot pay out what they promised to retirees. According to one pension advocacy organization, nearly 1 million working and retired Americans are covered by pension plans at the risk of collapse.

The looming pension crisis is not limited by geography or economic focus. These including former public employees, such as members of South Carolina’s government pension plan, which covers roughly 550,000 people — one out of nine state residents — and is a staggering $24.1 billion in the red. These include former blue collar workers such as roughly 100,000 coal miners who face serious cuts in pension payments and health coverage thanks to a nearly $6 billion shortfall in the plan for the United Mine Workers of America. And when the bill comes due, we will all be in very big trouble.

It’s bad enough to consider the philosophical fallout here, with reneging on the promise of a pension and thus causing even more distrust of bankers and retirement planners. But I’m speaking about a cold, numbers-based perspective that causes a drag on many parts of the American economy. Consider the following.

Pensioners have no flexibility

According to a Bureau of Labor Statistics report from 2015, the average household income of someone older than age 75 is $34,097 and their average expenses exceed that slightly, at $34,382. It is not an exaggeration, then, to say that even a modest reduction in retirement income makes the typical budget of a 75-year-old unsustainable — even when the average budget is far from luxurious at current levels. This inflexibility is a hard financial reality of someone who is no longer able to work and is reliant on means other than labor to make ends meet.

Social Security is in a tight spot

So who will step up to support these former pensioners? Perhaps the government, via Social Security, except that program itself is in crisis and will see its trust fund go to zero just 17 years from now, in 2034, based on the current structure of the program. If millions of pensions go bust and retirees have no other savings to fall back on, it will be nigh impossible to cut benefits or reduce the drag on this program. But won’t a pension collapse mean we desperately need Social Security, even in an imperfect form, well beyond 2034?

Pensions

 

The guaranty is no solution

There is an organization, the Pension Benefit Guaranty Corporation (PBGC), which is meant to insure pensions against failure. However, it was created in 1974 as part of a host of financial reforms and is far from a perfect solution, primarily because it is funded by premiums from defined-benefit plan sponsors and assets seized from former plan sponsors that have entered bankruptcy.

What happens when a handful of troubled pension funds turns into dozens or hundreds? Remember, the PBGC guarantees a certain amount that is decidedly lower than your full pension — as members of the Road Carriers 707 pension fund learned when the group “protected” their pensions by helping to pay benefits, which had been reduced from $1,313 per month to $570. That’s better than zero, but hardly encouraging.

This is not about helping Baby Boomers fund an annual cruise to the Caribbean. Older, low-income pensioners are not saving their money. Instead, they’re spending it on necessities such as food, housing, healthcare and transportation. That means every penny you reduce from their budget means a penny in spending that is removed from the U.S. economy.

Anyone who has taken Econ 101 knows about the “multiplier effect” where $1 in extra spending can produce a much larger amount of economic activity as that dollar circulates around businesses, consumers and banks … or in this case, how $1 less in spending causes a an equally powerful cascade of negative consequences.

By helping ward against a pension crisis, America will be protecting its economy for everyone — plain and simple. But that requires some tough decisions on all sides. For instance, the U.S. Treasury denied a cut to New York Teamsters’ pension plan that was proposed last year. But now the fund is on the brink of collapse, and its recipients are facing benefits that are in some cases one-third what they were 15 years ago.

Like Social Security, current workers can’t contribute enough to offset the big obligations owed to retirees. And as with the flagship entitlement program, it’s up to regulators and legislators to step in — even when it may not be easy — in order to keep the system from collapsing. Let’s hope they make both pension reform and Social Security reform a priority in the near future.



TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: financialcrisis; pensions; socialsecurity
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1 posted on 03/26/2017 5:30:43 PM PDT by SeekAndFind
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To: SeekAndFind

PUBLIC Pensions are in trouble.

Why?

Politicians (nearly all democrat) promised the public unions insane pensions in return for the the public union’s support and MONEY.

Public unions are the LARGEST campaign contributors of all time.

And give 99% to democrats.

It is basically money laundering of taxpayer money.

https://www.opensecrets.org/orgs/

There are private pensions that are in trouble too. But that is mostly self correcting (ie - if the unions bankrupt their private employers they will get nothing).


2 posted on 03/26/2017 5:36:49 PM PDT by 2banana (My common ground with terrorists - they want to die for islam and we want to kill them)
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To: SeekAndFind

The average income of an over 75 year olds of $34k supposes that those people HAVE NO SAVINGS. if so tough sh.. If they were that irresponsible for their lives they deserve to suffer. If they get sick again tough sh..


3 posted on 03/26/2017 5:38:50 PM PDT by from occupied ga (Your government is your most dangerous enemy)
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To: SeekAndFind

uniparty will once again float trial balloons to take over the 12 trillion plus in 401k’s and other retirement funds.


4 posted on 03/26/2017 5:40:47 PM PDT by Secret Agent Man ( Gone Galt; Not averse to Going Bronson.)
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To: SeekAndFind

Not when pensions are helped by interest rates.
Idiots.


5 posted on 03/26/2017 5:41:43 PM PDT by wardamneagle
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To: SeekAndFind

I don’t have a pension.


6 posted on 03/26/2017 5:42:33 PM PDT by Eddie01
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To: wardamneagle

RE: Not when pensions are helped by interest rates.

Interest rates go up IN THE MOST PART BECAUSE inflation goes up.


7 posted on 03/26/2017 5:44:14 PM PDT by SeekAndFind
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To: Eddie01

RE: I don’t have a pension.

I hope you have alternatives, i.e., social security + 401K or IRA + other investments.


8 posted on 03/26/2017 5:45:35 PM PDT by SeekAndFind
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To: SeekAndFind

Yeah...Oregon is in a w o rld of hurt...talked to my State Legislator Fri. ..she said it’s baaaaddd...but we are still paying football coaches and doctors pensions of 25K to $52K a MONTH


9 posted on 03/26/2017 5:53:18 PM PDT by goodnesswins (Say hello to President Trump)
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To: SeekAndFind

I’ve always assumed they would magically change the rules on the various tax-deferred or tax-advantaged federal pension plans.

Anyone who thought the politicians would keep their promises on those is a fool.


10 posted on 03/26/2017 5:56:02 PM PDT by Steely Tom (Liberals think in propaganda)
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To: SeekAndFind
But the next financial crisis that rocks America won’t be driven by bankers behaving badly. It will in fact be driven by pension funds that cannot pay out what they promised to retirees.

This is part of "leadership behaving badly". They have taken the money that they were suppose to safeguard and carefully invest and blown it.

If this was a company pension fund in a small company or a small union it would be easy to track down who had committed this betrayal of trust and punish them.

But in the world of Mega-corp, mega-union and mega-government their very size is their protection. How do you go after everybody?

Who is innocent and who is guilty?

11 posted on 03/26/2017 5:59:10 PM PDT by Harmless Teddy Bear (Not a Romantic, not a hero worshiper and stop trying to tug my heartstrings. It tickles! (pink bow))
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To: SeekAndFind

The city of Dallas is going to end up in bankruptcy unless they get a bailout. They turned a blind eye to mismanagement and corruption in the Police and Fire pension fund.


12 posted on 03/26/2017 6:13:58 PM PDT by PAR35
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To: SeekAndFind

I’ve been non-union private sector my whole working career. SS and 401K + assets + savings are my retirement.


13 posted on 03/26/2017 6:18:49 PM PDT by umgud
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To: umgud
"I’ve been non-union private sector my whole working career. SS and 401K + assets + savings are my retirement."

We're in the same boat. Private sector pensions largely went the way of the dodo bird about the time we entered the professional workplace. Thanks to all the upheaval in the private sector, we've changed careers a few times and are both now in a parochial school teachers union. As of a few years ago, even that organization went to a defined contribution plan because traditional pensions, even meager ones, were unsustainable.

14 posted on 03/26/2017 6:35:44 PM PDT by Think free or die
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To: SeekAndFind

Does this mean 1 and 1 really doesn’t equal 11 ???

Seriously folks, the people that negotiated these fraudulent contracts that are mathematically impossible to fulfill, belong in prison and their Assets Stripped. The people that believed them should ave learned to do basic math.

All pension funds that are Underfunded should be abolished, all assets turned over to Social Security, and dump all the dupes in to Social Security.


15 posted on 03/26/2017 6:37:06 PM PDT by eyeamok (destruction of government records.)
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To: SeekAndFind

Thanks to Obama, I dont have a pension, IRA, 401k, or savings. After two layoffs under obama, I am thankfull to have at least have a job under President Trump. If both my wife and I work another 20 and then retire, me at 72 and the wife at 65, then I just might be able to live with a reduced lifestyle in my retirement years.

THANKS Obama /sarc


16 posted on 03/26/2017 6:44:43 PM PDT by taxcontrol (,)
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To: SeekAndFind

Thanks to Obama, I dont have a pension, IRA, 401k, or savings. After two layoffs under obama, I am thankfull to have at least have a job under President Trump. If both my wife and I work another 20 and then retire, me at 72 and the wife at 65, then I just might be able to live with a reduced lifestyle in my retirement years.

THANKS Obama /sarc


17 posted on 03/26/2017 6:45:45 PM PDT by taxcontrol (,)
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To: 2banana

It’s money laundering, influence peddling, legalized extortion, and a ponzi scheme all rolled up in one.


18 posted on 03/26/2017 6:52:45 PM PDT by Rome2000 (SMASH THE CPUSA-SIC SEMPER TYRANNIS-CLOSE ALL MOSQUES)
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To: goodnesswins

But, but....U of O is in the NCAA Final Four.


19 posted on 03/26/2017 7:15:42 PM PDT by gundog (Hail to the Chief, bitches.)
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To: goodnesswins

But, but....U of O is in the NCAA Final Four.


20 posted on 03/26/2017 7:15:53 PM PDT by gundog (Hail to the Chief, bitches.)
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