Public Pensions Place Undue Burden on Staggering Economy

The ticking time bomb of overpromised, underfunded public pension plans has finally exploded. Here are a few articles to consider:
 

• Pension fund of San Diego may have lost as much as $1 billion of its $5 billion in assets
  
  
• Through mid-October, Colorado’s PERA fund lost $10 billion in market value
  
  
• Illinois taxpayers may soon be forced to bail out IMRF, the best-funded public pension plan in the state, after it incurred $3.6 billion in losses
  
  
• A pension crisis is on the horizon in Canada.
  
  
• Taxpayers may have to spend $1 billion to prop up Los Angeles County’s public pensions.
  
  
• Fresno County’s retirement plan has lost nearly a third of its value over the past year
  
  
• Since April, New York State’s pension fund has lost 20% of its value.
  
  
• Cailfornia’s CalPERS has lost $50 billion in the stock market since July 1st.
  
  
• According to the Financial Times: “In the 9 months to the end of September, the average state pension fund lost 14.8%,…The previous highest loss for state funds was 7.9% for the full year in 2002.”

Future Expectations Too High

The above is just a random sampling of hundreds of articles about pension plan woes. 40% of pension plans are underfunded - and that assumes future returns of 8% annually. Good luck with that.

Now, think how bad things will be if the S&P drops to 600. Go one step further and think about what might happen if the US heads into an economic slump similar to Japan. For a quick review please see S&P 500 Crash Count Compared to Nikkei Index.

Nikkei Monthly Chart

Click to enlarge

If that chart seems farfetched for US equities, I assure you it's not. Click on the above link for a fundamental and technical explanation of why something like that might happen.

Taxpayer Backlash Brewing

A huge taxpayer backlash against overly generous public pension plans is brewing. Boomers with destroyed stock funds and IRAs aren't going to want to have their taxes increased so that public workers can get 90% of their salaries for the rest of their lives.

Vallejo, California went bankrupt over benefits earlier this year. Expect to see more cities and counties take that action if the stock market continues to decline.