Five Trillion Dollars! Doomed US Pensions’ Shortfall Now The Size Of Japan’s Economy
by Tyler Durden
ZeroHedge.com
Tue, 07/31/2018
Scores of public pensions across the United States are so massively underfunded that the shortfall is roughly equal to Japan’s GDP – the world’s third-largest economy, according to Moody’s Investors Service.
State and local pension plans in the U.S. now have less than three- quarters of the money they need to meet their promised payouts, their lowest level since at least 2001, according to Public Plans Database figures weighted by plan size. In dollar terms the hole for state and local pensions is now $5 trillion, according to Moody’s Investors Service. -WSJ
If governments don’t increase taxes, convince pensioners to take less than they were promised or divert funds from elsewhere, an increasing number of funds face insolvency, reports the Wall Street Journal.
In Kentucky, for example, a major pension for state employees had around 16% of what it needs to fulfill its obligations based on 2017 fiscal year figures, according to the Public Plans database which tracks state and local pension funds. A Chicago municipal employee fund had less than 30% of what it needed during the same fiscal year, while New Jersey’s state pension is so underfunded it faces insolvency in 12 years according to a Pew Charitable Trusts Study.
For an example of what happens when a pension hits a brick wall, look no further than Central Falls, Rhode Island – a city of 19,359 which was forced to cut monthly checks to retired police and firefighters by as much as 55% as the entire town tried to stave off bankruptcy. Alas, the town still filed in 2011 – and while its financial situation has improved, retired city employees aren’t getting their full pensions back.
“It’s not only a financial thing,” said 73-year-old retired Central Falls firefighter Paul Grenon, who retired after a falling wall punctured his lung, broke his back and five ribs, and left him unable to perform basic tasks required for the job like climbing ladders. “It really gets you sick mentally and physically to go through something like this. It’s a betrayal, as far as I’m concerned.”
After the 2011 bankruptcy, an event that received national attention amid predictions of widespread municipal failures, retirees agreed to 55% cuts because they feared facing even deeper cuts later.
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The concessions helped Central Falls emerge from bankruptcy in 2012 and create a “rainy day fund” that now holds $2 million.
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Mr. Grenon, the firefighter who retired after he was injured, says the pension reduction left him without enough money each month to cover a $300 prescription lung medication. He has medical coverage but said the medication is beyond what is covered. -WSJ
The Journal notes what we’ve been pointing out for years – namely that when times are good, politicians make overly generous promises, while public-employee unions make unrealistic demands that elected officials acquiesce to.
As a result, former lifeguards in Laguna Beach, CA enjoy $200K pensions, while retired bigwigs rake in even more – such as former Penn State president Rodney Erickson who receives $477,950 per year from the state.
The Rest…HERE
