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Pension Crisis Deepens

Wed March 31, 2010

Mish (see link at left) reports the following on state pension plans.

His point is that these defaults will be deflationary, expectations of future income will not be met. This means less money to spend in the future on everything from eating out to vacation cruises. And it means a lot of very unhappy pensioners. The reactions we can expect are on display in Russia and Greece now. 

Fictitious Accounting 

Fictitious accounting allows states to pretend their pension plans are in better shape than they really are. Hawaii, Montana, New Jersey, Illinois, Mississippi, Ohio, New Mexico, Rhode Island, and Alaska all have unfunded liabilities of 50% or greater. 20 states have unfunded pension liabilities of 40% or greater.

Most states have pension plan assumptions that assume a 7% rate of return or higher. Such returns simply will not happen. Worse yet, another downturn will cripple states.

$5.17 trillion in pension obligations is a hell of a lot of money. How will it be paid? The answer is it won't.

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2 responses to “Pension Crisis Deepens”

  1. Dawn Vrana Avatar
    Dawn Vrana

    This reminds me to buy my lotto ticket tonight for the $62.8 million dollar jackpot. It seems that states are playing a “lotto” with their pension plans….will the employee and his/her benefactors live long enough for the money that has been “vested” to double in value, an amount hopefully large enough to cover the debts (or is it bets?)? My husband is a state employee and the company attitude of the state pension plans is that the state “takes care of their own.” NOT IF THEY DON”T HAVE THE MONEY!!!! This is one of our biggest “spousal” arguments…he wants to depend on the state pension plan for about 85% of our retirement income. Talk about having all of your eggs in one basket! I, on the other hand, would rather diversify, and have several “sources” of retirement income…and fingers-crossed with lucky rabbit foot, hopefully one of them will be my lottery winnings investment account. 🙂

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  2. Joy Avatar
    Joy

    At some point the govenments are going to realize they can’t continue to fund the pension plan and government employees will have to begin funding their own retirement account like everyone else. Same goes for social security; too many people thinking the government will provide for their retirement. If I were a government employee I would definitely be funding my own retirement and not depending on the government to fund it.

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