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Why Does it Seem Like No One is Worried about Growing Public Pension Gaps?

CNBC had an article the other day highlighting the disturbing public pension gap that is growing at an alarming rate.  While I didn’t read the study by Moody’s behind the article the statistics highlighted by CNBC are, to say the least, frightening:

In less than a decade, that shortfall has tripled to at least $2 trillion—more than half of all outstanding state and local bond debt, according to a report by Moody’s Investors Service.

Moody’s looked at the unfunded liabilities of the 25 biggest public retirement systems, which cover 40 percent of the $5.3 trillion in total U.S. public pension plan assets.

Like nearly all retirement savers, pension funds got clobbered by the 2008 financial collapse. In the 2008 and 2009 fiscal years, the 25 plans’ assets dropped nearly 22 percent cumulatively on average, Moody’s said.

But the pension shortfall had been building well before the downturn—and has been made worse by state and local government’s shortchanging annual fund contributions. New Jersey, for example, took “contribution holidays” during the Great Recession and more recently has cut payments or just skipped them altogether, Moody’s said.

States and cities have also used accounting gimmicks to mask the widening shortfall, including “asset-smoothing” that lets them spread out the impact of the market downturn. They’ve also used rosy scenarios to inflate their estimated investment returns. Unlike corporate accounting rules, the rules for government accounting let pension fund managers just pick a return number that makes their future liabilities look smaller.

What?  Contribution holidays?Accounting gimmicks?  Holy shit.

Pension funds are also getting hammered by demographic forces that show no signs of easing. Widespread state and local job cuts since the Great Recession have shrunk the pool of active workers paying into pension fund savings—even as the pool of current retirees drawing benefits is living longer.

In Michigan, for example, the ratio of active employees to retirees has fallen by more than 50 percent. That state now has slightly more than one active employee for each retiree. Moody’s said

Why aren’t people going nuts?! When these things start inevitably blowing up who is going to have to pay into it?  Easy – everyone else!  It isn’t like a State is going to let the Teacher’s pension crumble without injecting it with a ton of cash.  Similarly, you think the Federal government is going to just turn a blind eye when CALPERS goes defunct? No way!

It is Time to End Public Pensions

There were promises made in the past, I get it, honor those promises. Why, however, are new promises being made daily?



  1. The answer to both is “kick the can down the road.” The shortfall in the future will be someone else’s problem. Same with making more promises.

    My wife is in line to get a government pension at 20 years of service. It is a significant part of her compensation. She could have made more in the private sector as a pharmacist, so that’s the tradeoff the government makes to be able to get talent.

    Maybe that’s why new promises are being made… at least on the Federal level.

    • true, the only problem is that that can is still our problem, just postponed for a few years, unless you are already retired. But if you plan to retire in the next 15 to 20 years, this kicking the can down the street will hit us too.
      Another problem is that there is still enough people stupid enough not to see it.

    • If there is a problem keeping a demand I could get behind it – a way to attract talent. However, where I live there is literally a multi-year waiting list to be a teacher. A TEACHER! Even if one-third left due to no pension being offered new teachers you’d still have a waiting list.

    • While that is 100% it annoys me that the gov’t (i.e. my tax dollars) will eventually bail out public pensions. It is inevitable.

  2. This is pretty simple to answer. The governments solution to this would be to hire another 20% more public official positions…. As crazy as that sounds it’s probably what they would do.

    This is a great topic and I agree with your points. I’m with Investor junkie. At this point you have to take care of yourself and your family. No one is listening.

    Do you want to take the risk and HOPE 10, 20 30, years down the road your going to get a steady pension. With the real rate of inflation, (not the BS you hear) what will that money buy you anyways? 50% of what you can today? If packaging gets any smaller your going to have to start buying two packs of products to have the same quantity of what you bought a few short years ago.

    Most people that come to your website are on some road to investing already. I pity the many who don’t have a clue. But what can you do. When you talk to friends, and co-workers about even simple investing, you just see eyes glazing over and their thoughts wandering to the last episode of American idol. I guess the future will take care of itself for some. Maybe a Powerball win?

    • Completely Agree, Paul. Personal responsibility needs to be taken.

      Notwithstanding, even with true inflation eroding on pension income it still does wonders to a retirement run. When I run a retirement analysis those with the income stream usually fair much better as it puts less pressure on the underlying investments. Makes a huge point to create one’s own pension via dividend stocks (or outsource it with an income annuity).

  3. Retirement is going to be a major issue with or without public pension plans. Our company gives us the pension at the end of each year. They only invest in what they have and then give it to the employees because the temptation to do something is too great. This way I am ultimately responsible for my money and retirement. Next 20-50 years are going to be rough with people on their own and running out of money.

    • “Retirement is going to be a major issue with or without public pension plans”

      Granted but I was complaining that my tax dollars are going to eventually be used to bail out underfunded public pensions. Some of which shouldn’t take on new participants.


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