Scary Pension Math: Even After Bull Market, Governments Still Owe $1 Trillion

Investors Business Daily ^ | 01/21/2016 | STEVEN MALANGA

[expat_panama]

Wall Street has only recently ended the third-longest bull market in history. But in July, when stocks were still near their 2015 high, the Pew Charitable Trusts reported that state and local pension debt nationally had barely fallen since 2009, despite years of market gains.

Now, with markets down more than 12% since summer, new pension debt is piling up...

Absent some startling development — like an even bigger runaway bull market, which few market watchers anticipate — the crisis will worsen.

At the root of the problem is a change in the financial structure of public pension funds...

Another problem: When funds did well in the market, politicians often gave away the gains...

After five consecutive years — from 1995 through 1999 — when the S&P 500 advanced by at least 21% annually, many pension funds were fully funded and handing out new benefits. But the bursting of the dot-com bubble in 2000 and subsequent broader market declines proved devastating. By 2003, government pensions had accumulated $233 billion in debt.

Where'd The Money Go?

Governments have made little progress since, especially after the 2008 financial crisis hammered stocks again. Even though investment gains averaged double digits for eight of the years since 2003, including increases in the S&P 500 of 29% (2003), 27% (2009) and 32% (2013), debt has now swollen to at least $1 trillion.

Many state systems have higher unfunded liabilities today than in 2003....

Taxpayers should also seek laws that bar politicians from being able to make key decisions that impact pensions, including manipulating accounting standards...

The biggest impediment to real reform has been the notion that a few good years of investment returns, combined with some additional contributions, will solve most pension underfunding. That's turning out not to be true.

[expat_panama]

Just over half of American households own stocks directly, but almost all Americans are affected by stock prices at least indirectly.

[abb]

http://theadvocate.com/news/14643524-123/why-louisiana-board-refuses-to-change-pension-formula-to-help-shore-up-teachers-retirement

Why Louisiana board refuses to change pension formula to help shore up teachers’ retirement

http://theadvocate.com/news/14629609-123/retirement-flap-pits-education-groups-against-auditor

Retirement flap pits education groups against auditor

[expat_panama]

Whoa, Friday!  Our indexes saw modest gains yesterday in lite volume, and maybe this morning's futures traders are guessing right w/ their upbeat forcasts.  Once again metals futures look great while actual prices continue to plod sideways.

A half hour after opening today we'll get Existing Home Sales and Leading Indicators; my strategy will be more waiting and seeing while I read these comic books:

Davos Is An Elite Gathering About Nothing - Caroline Baum, MarketWatch
Robots Coming For Your Job, Faster Than You Think - Szu Ping Chan, DT
The Voters Won't Reject Bernie Sanders' Economics - Robert Reich, Salon
After Tears We'll Be Laughing At the Fed - Jeffrey Snider, RealClearMarkets
NGDP Targeting by Fed Is Latest Monetarist Error - Nathan Lewis, Forbes
The Performance Review Is Insulting & Outdated - Shawn Murphy, Slate
Why Is There No Uber for Health Care? - Editorial, Investor's Business Daily

[expat_panama]

those are the kinds of news stories that have me concerned, the way we keep seeing chickens everywhere that are all coming home to their roosts all at the same time.

[Alberta's Child]

I don't get very concerned about stories like this. A government debt like a pension liability is different than any other debt because it is one of the rare cases where the debtor has a lot of control over whether the recipient of the future payments even survives long enough to collect them.

I have enough faith in the cold, nihilistic, pragmatism of our nation to realize that people will be euthanized en masse before this ever becomes a real problem.

[Jimmy Valentine]

Please add me to your ping list.

[abb]

If you know the government deadheads in your area like I know them here in Louisiana, they won’t go down without a fight. Never in my life have I seen a group of people with an entitlement mentality like Louisiana government deadheads. Their attitude vastly surpasses any Welfare Queen. The WQs at least have a modicum of humility about them.

Not so government deadheads. They DARE anyone to touch their retirement or medical bennies. They will kill for them, and turn on friends or family.

It’s what they live for.

[abb]

I know Legislative Auditor Daryl Purpera personally. He and his staff know what they’re doing.

[kearnyirish2]

You’ve never been to NJ, have you? Our public employees (especially school teachers) are the worst. They are driving taxpayers and their employers out of the state at an alarming rate, and couldn’t care less.

NJ is up there with Illinois and California in terms of insolvency for a reason...

[kearnyirish2]

As stock prices are increasingly indicative of how many US jobs can be sent elsewhere, people must realize that a soaring stock market means jobs for Red China and unemployment for Americans. Any time a company announces layoffs, the stock picks up immediately.

[expat_panama]

roger that

[abb]

I wrote this yesterday on my newsblog.

https://lincolnparishnewsonline.wordpress.com/2016/01/21/its-for-the-children-isnt-it/

It’s for the Children, Isn’t it?

More taxes, of every sort, local and state. Ruston Mayor Ronny Walker wants to raise sales taxes to pay mostly for a new recreation complex on South Farmerville. Our new Governor Edwards says you all have to sacrifice more for sales and income taxes to pay for the tens of thousands of state employees, their retirement, and their medical benefits.

But is the money now going to government efficiently used?

We decided to take a close look at what the costs are to educate children in Lincoln Parish Schools, compared to the cost of educating children at one of the premier private schools in North Louisiana, Cedar Creek.

According to the latest audit for Lincoln School District, the 2014 cost per pupil is $13,603, almost double the cost of 2005. Notice also that there were 20 fewer teachers in 2014 than in 2005.

See here the document.

See here the complete audit.

Compare those costs with the tuition costs at Cedar Creek of $6,290/yr or $6,570/yr, depending on grade level. Additional costs are a $650/yr student fee for books and supplies.

See here the document.

So where does the money go? It’s for the children, isn’t it?

[expat_panama]

...don't get very concerned about stories like this...

Yeah, concern never does much good. 

As far as action goes though my thinking is that it wouldn't hurt to tweak some contingency plans w/ my own pension plus maybe a colder eye on the value of various municipal bonds.  Pensioners may have a big say in what they want gov't employers to do but eventually even gov'ts run out of money and go into receivership.  Sure, those gov'ts will probably be forced to make good becuase they don't want to tell all the gov't staff that their effective pay's just been cancelled.  The thing is that governments only exist inasmuch as the gov't employees are there to make things happen --so they will be paid no matter what.

Meanwhile w/ no money we'll see big cuts in services and delays.  "Hunker down" time.

[kearnyirish2]

Our schools are run-down, the books old & tattered, and we have many teachers raking in six figures (by adding to their “value” with fake degrees from online universities - “diploma mills” - and “bilingual/bi-cultural” classification). They retire late because it is an easy part-time job that can be done well into their 80s.

The “for the children” mantra is losing its appeal because predominantly white taxpayers can easily see that the student bodies are quickly becoming very “non-white”; millennials see little reason to pay for others’ children’s education - and here in NJ that prevents them from buying homes. Instead, they flee the state - and are replaced by more Third Worlders.

[Jimmy Valentine]

Thank you. We are in for a roller coaster ride until the election.

[expat_panama]

...stock prices are increasingly indicative of how many US jobs can be sent elsewhere...

--and the dow up 160 fold from where it was a hundred years ago means America has fewer folks employed now than back during WWI.

[expat_panama]

Yeah, unstable markets are just not my forte; I’m over a bit into cash while I wait for all the kids to settle down and show they’re willing to get back to work.

[bert]

——Davos.....converge on this exclusive Swiss ski resort to … network with one another-——

Net work is code for collude and set prices

[bert]

At a recent gathering of Democrats uncle joe biden wanted to recognize a stalwart and he loudly asked.....Stand up Robert and let us applaud you

He was speaking to Robert Reich

[Buckeye McFrog]

Google “Theresa Ghilarducci”. That is how they are going to worm their way out of this.