Prepare to write another bigger one every year for the next 30 years, even if public pension fund investments match historic indexes of the past 30 years —
which would put the Dow
above 65,000 —
and managers actually earn what they promise.
Even if long-term bond yields miraculously increased tenfold overnight, taxpayers would have to write the big checks.
Neither of those miracles will happen, so forced transfer of wealth from one generation to the next, and from private to government pockets, is locked in for at least three decades.
Why? Because this public pension crisis is not going away. It actually is getting worse every year, because politicians, financiers and union bosses lie to taxpayers, public workers and themselves about how much retirement benefits truly cost
Right now, based on U.S. Census Bureau
calculation of a 17.6 percent gain year over year ending June 30, somebody still has to kick in more than $30 trillion for what we already owe, or pension checks bounce. Do the math.
Funds should have gained 45 percent year over year to make up for losses in the Great Recession. And even in the highly unlikely event pension funds eventually do average target gains over 30 years, somebody is going to have to fill big gaps.
If performance falls short, the gaps will be trillions of dollars bigger.
Guess who has to pay up or have our property confiscated? Taxpayers. This is at least $30 trillion taken from a generation already burdened with the biggest government legacy debt
in history. It is locked in; no reforms going forward have any significant impact.
The head of California’s bankrupt and corrupt Public Employees Retirement System confessed to Bloomberg News
on Thursday that pension investments definitely will continue to fall short.
The probability of funds achieving their 30-year goals of 7 percent to 8 percent a year is zero compared with performance during the past 30 years when you throw current bond yields into the mix.
For example, in 1981 pensions and other investors could lock in a sure-thing 15 percent for 30 years, according to the U.S. Treasury Department
. Right now, they can get less than 3 percent for the next 30 years.
All other bond yields tend to go up and down with treasuries, but higher returns bring higher risk.
Public pension funds must have a significant portion of investments risk free, because they guarantee benefits. Guaranteed benefits should be secured by guaranteed investments.
Instead, public pension funds are taking on more risk by betting there never ever will be another market downturn. All of that risk is on taxpayers.
The fact that as of Friday, markets had eaten at least half the year-over-year gains reported for June 30 should be enough for America to demand immediate drastic action on public pensions.
Census reported “total holdings and investments were up four consecutive quarters … reaching the highest level since the second quarter of 2008. … This was the seventh consecutive quarter with a year-to-year increase.”
Wonderful news, right? Wrong! Even those results — even if sustained — still leave a generation of taxpayers in debt for public pensions.
State and local politicians never can dig us out of this hole. Pension fund managers cannot earn us out of it.
The only thing these latest numbers prove is we are past time for letting politicians deny reality and refuse to deal with it.