"One of the nation’s largest pension funds could soon cut benefits for retirees" - Newmark's Door
"What’s driving Illinois’ $111 billion pension crisis" - Newmark's Door What happens in Puerto Rico won’t stay there Pensions today are on the rocks, it really doesn't matter whether they be public, or private, they are pretty much in a state of collapse, and will leave millions with insufficient funds for retirement. The solution is not to make retirement federal but to make retirement a blend of personal through IRA's and the like, employer through things like 401(k)'s, and 403(b)'s, and then add in the amounts paid into Social Security. Social Security, or Savings, or a Little of Both Those are fine ideas. The real point here, however, is that pensions are in a shockingly dismal state, and even if you have a pension and it seems stable, you should take actions today to help protect yourself in case it suddenly finds itself in the same position as many of these other pensions. We have written about this before. Central States Pension Fund is essentially broke, and will need to cut payments to retirees . . . "Government as we know it is likely coming to an end. We will need to replace it with something more functional, and soon. Please stay abreast of the blue model articles, you will need to make informed decisions on how to proceed, and they will allow you to be informed as you ponder the way forward."
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Central States Pension Fund is essentially broke, and will need to cut payments to retirees . . .4/21/2016 "This Is Going To Be A National Crisis" - One Of The Largest U.S. Pension Funds Set To Cut Retiree Benefits
. . . or face insolvency by 2025. "As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it "projects" it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark." Pensions were always a bad idea, but they worked during the first half of the 20th century, today they are failing. This is not just a public pension problem, it is a problem with all pensions. Expect millions of retirees to be hit by these insolvency problems. "The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year." That is a problem indeed. These pensions, and more often the public pensions, forecast returns on invested assets of 7-8%, but if you note the Central States Pension only returned a -0.81%. This allows the pension to make it appear as if the pension fund is returning to solvency, while it is actually losing ground. Then, unexpectedly, it is insolvent. Fortunately there is a solution the Pension Benefit Guarantee Corporation. "As a result, Thomas Nyhan, executive director of the Central States Pension Fund said that the fund could become insolvent by 2025 if nothing is done. The fund currently pays out $2.8 billion a year in benefits according to Nyhan, and if the plan becomes insolvent it would overwhelm the Pension Benefit Guaranty Corporation (designed by the government to absorb insolvent plans and continue paying benefits), who at the end of fiscal 2015 only had $1.9 billion in total assets itself. Incidentally as we also pointed out last month, the PBGC projects that they will also be insolvent by 2025 - it appears there is something very foreboding about that particular year." Ok, perhaps it is not a solution, more of an additional problem. Ok, then, but wait! The Bern has a solution! Stop laughing! "All hope is not lost, however. Democratic candidate Bernie Sanders has proposed a bill that would repeal the measure allowing cuts, and instead calls for the government to provide assistance to troubled pension funds. In other words, another bailout. Which brings us to the current juncture, where we remind everyone that the governments own safety net, the PBGC has itself become insolvent, and according to CNN, projects that more than 10% of the roughly 1,400 multiemployer plans, covering more than 1 million workers fits the current criteria to be able to apply for benefit cuts for participants. "This is going to be a national crisis for hundreds of thousands, and eventually millions, of retirees and their families. It's going to open the floodgates for other cuts." said Karen Friedman, executive president of the Pension Rights Center." Everyone has their hand out seeking only a few million or perhaps a few hundred million from the federal government. Which is in debt up to its eyeballs, and which is only paying 3/4 of the budget with tax dollars, the rest is being financed, like one might finance a used car. Actually it's worse than that, this is like some poor benighted lolly knob earning $30,000 per year, then borrowing an additional $10,000, so he can live the lifestyle of the $40,000 per year bloke. And the federal government does this year after year after year. Brilliant! Talk about poor benighted lolly knobs. Everyone wants a buck out of Uncle Sam. So, we have cities wanting new light rail, many more cities wanting to completely rebuild existing light rail lines because they are worn out, we have most of the states, counties, and municipalities with serious public pension overhang problems, serious private pension problems, which will reduce the retirement benefits to millions of retirees. Obamacare is falling into a death spiral, and I am just scratching the surface. How about the more than $1 trillion in college debt, nearly one half is either not being paid, or in actual default. And what of the universities, and colleges, they have spent so much and their fees, and tuition is now so high no one but the wealthy can actually afford it even with student loans. They really could use a load of cash about now. And how about . . . It's endless. And all of them are looking to the feds for cash. We have serious problems, and nearly all of them are related directly to the blue model of government. Walter Russell Mead has been writing about the collapse of the blue model for a very long time. The Once and Future Liberalism This article defines, analyzes, and points out possible alternatives to the blue model. It is well worth your time. Government as we know it is likely coming to an end. We will need to replace it with something more functional, and soon. Please stay abreast of the blue model articles, you will need to make informed decisions on how to proceed, and they will allow you to be informed as you ponder the way forward. Millennials Like Socialism — Until They Get Jobs
. . . and find in the robbing Peter to pay Paul game, they are Peter. They will like it even less once they have to start paying for all those wealthy Boomers retirements, medical costs, etc. "Millennials are the only age group in America in which a majority views socialism favorably." Of course they do. Families are socialist in nature, and the children are takers, not earners. But once they learn what it is like to work for pay, they begin to change their minds. "So what does socialism actually mean to millennials? Scandinavia. Even though countries such as Denmark aren’t socialist states (as the Danish prime minster has taken great pains to emphasize) and Denmark itself outranks the United States on a number of economic freedom measures such as less business regulation and lower corporate tax rates, young people like that country’s expanded social welfare programs." Also unsurprising, since these people have little savings, they feel insecure. The American system is based on the atomized nuclear family, where each individual or couple is economically separate, and independent from others including their family. This creates a dynamic economy since each nuclear family must achieve to support itself, but it also creates a high level of insecurity. Traditionally this was solved by lots of hard work. Since the welfare revolution back in the 1930s, we have seen ever more welfare, or security spread across the land. The Millennials believe it is appropriate for them to access some of this security to assuage their feelings of insecurity. This is likely the least efficient way to solve this problem. A better way would be to create, and fund personal tax favored (and bankruptcy protected) accounts which will allow the individual to create a personal welfare buffer. While the government will need to backstop such a program, it would go far to reform the welfare system in a positive manner. Another mechanism to address this would be a minimum income formulation (this can be used in conjunction with the tax favored account model). This should be accompanied by the elimination of the income tax, the corporate tax, the payroll tax, and the estate and gift tax. Then a minimum income could be instituted where individuals so needing would have to access the funds by agreeing to pay income tax. Of course, this "tax" would be negative while the individual's earning were below the minimum income level, and once near or above the individual would simply stop participating in the voluntary income tax and no longer receive minimum income funds. Payments would be direct deposited into one of the above tax favored accounts. This would eliminate the income tax for those who make a living wage, and only require it for those who do not, and who wish welfare income supplementation. The unpleasant nature of the income tax, the penalties, and other issues would likely limit who would be willing to seek this assistance to those who need the assistance. The real benefits would be the total elimination of the federal welfare state, and the elimination of the income tax, corporate tax, etc. The benefits of this would be huge. Just the billions of dollars saved in tax preparation costs would be huge. Plus, without these taxes, there would be no need for offshore tax avoidance schemes, or the myriad corporate tax dodging schemes. The tax would become a consumption tax, and everyone from businesses, to illegal immigrants would pay their fair share. The minimum income would eliminate the need for a minimum wage, and most of the other inane employment regulations. These changes would make businesses more competitive, and bring businesses to America. We would have an onshoring "problem" with businesses, not an offshoring problem, since there would be no corporate income tax to push business to incorporate in foreign nations with lower tax rates. Nor would Apple have an incentive to anchor income offshore. The problem? Not enough graft, and corruption for the politicians. This is nearly always the reason simple, effective, and efficient political changes never happen. Add to that we have the worst political class in history, and one might despair. However, the current government pension and inefficiency/funding crisis is likely to result in wholesale change to our body politic, and our underlying political, and governmental institutions. I suspect this will offer us the ability to move from the now decaying progressive system to a more vibrant economic, social, technological model. Here's hoping! Hat tip: Instapundit IT’S USUALLY LIKE THAT: Millennials Like Socialism — Until They Get Jobs. Instapundit BLUE MODEL BLUES: t’s Not Just Puerto Rico.
. . . if you don't know who is the mark, you are. The link goes to one of my favorite liberal intellectuals, Walter Russell Mead. It’s Not Just Puerto Rico "Puerto Rico’s rolling bankruptcy crisis is just a taste of the fiscal storm that lies ahead if American state and local governments can’t find a way to bring their own gaping pension shortfalls under control. For decades, rapacious public sector unions and craven politicians on the mainland have also been also been propping unsustainable state employee retirement systems, and—crucially—using accounting tricks to dupe the public and conceal the magnitude of their unfunded obligations. Congress’s proposed relief package for Puerto Rico would require the island to be more forthright about its pension costs going forward, but it would allow state and local governments to continue downplaying the size of their debts." We have written about this often. Progressivism infects the entire body politic, and unless it is eradicated, it will eventually kill us. The pension Ponzi is only one of the myriad problems facing America here at the End of History. This transition from the progressive era to the new economic, political, social, cultural, technical model is proving to be long and arduous. But a White Knight is riding to the rescue. "… Last year, nearly 60 percent of state and local governments failed to make their full pension contributions. With trillions of dollars in public-pension liabilities residing off the ledger books, and increasingly risky investments used to fund those liabilities, failing to address public-pension disclosure would be a huge lost opportunity." Not what you expected? But it will have to do. The change is critical, and there is no way we will see the progressive movement give up its current hold voluntarily. It appears the way out will be through the total collapse of the progressive movement, likely triggered by the existential crisis foretold in the American State Pension Ponzi. "The resistance to honest accounting is apparently coming not from Congressional Democrats, but from Republican state legislators eager to keep their pension Ponzi schemes in place—a reminder that corrupt blue model practices are thoroughly bipartisan. Hopefully Congressional Republicans will have the good sense to reverse course and require state and local governments to come clean as well. If not, they shouldn’t be surprised when they are asked to send billions not just to San Juan, but to Chicago, Trenton, and Frankfort as well." It is bipartisan stupid, the only thing our political class seems to do well. Perhaps the Stupid Party® will reverse course, but they are nick named the Stupid Party® for a reason. I am not holding my breath. Stanley Druckenmiller: "This Is The Most Unsustainable Situation I Have Seen In My Career"
. . . is the Millennials awakening to the understanding that the Boomers have seriously screwed them to the tune of trillions of dollars. The Great Realignment of resources will be extremely painful, primarily because only one half of the Boomers have any retirement savings at all. We have friends whose parents needed to sell their primary residence and move into a much smaller place near their children because they simply never saved for retirement, but retired anyway. Now they do not have the money to support themselves. Expect to see this repeated often during the next few decades as the Boomer retire. We need to leave the progressive welfare system and build a new, and better system to protect the elderly in old age, the poor today, and those whose medical costs are too significant to bear alone. We need to do this soon. The inequity at the heart of France’s labour market - FT.com
. . . not competition, and labor. "It is a bruising setback for Mr Hollande, who has repeatedly said he will run for re-election in 2017 only if he has made significant progress in cutting France’s double-digit unemployment. This is still hampered by the high cost of labour, the confrontational nature of labour relations and the inequity of a two-tier system in which employees with permanent contracts enjoy too much protection. Meanwhile young people spend years hopping between precarious temporary positions. The lesson Mr Hollande should draw from the debacle, however, is to be bolder rather than more cautious in framing his ambitions for a second term." Worldwide, the Boomers are the worst generation in history. They want security, and sinecure here in France, and do not care if it destroys the country, and bankrupts their children, and grandchildren. They want the good life, and will have it regardless of the sacrifice their children will need to make. "The main problem is that the president, elected on a manifesto that played to traditional socialist values, has failed to make the case for reform to a sceptical public. Instead, he spent his first year in office delivering crowd-pleasing promises made on the campaign trail. Now, voters on the left feel betrayed; those on the right doubt his motives; and he is heavily constrained by the need to unite the leftwing of his party in order to combat the populist appeal of the National Front. More-over, a backdrop of sluggish growth is not conducive to structural reforms that rarely pay off in the short term. In Italy, Mr Renzi has been able to take more decisive action because he came to power with a clear commitment to reform — and because the Italian economy was far closer to crisis. In France, economic growth has been disappointing, but stable; public debt manageable; and productivity comparable with that of most major economies. Many people do not see the urgency of more disruptive changes. Nonetheless, the current system is failing young people, whose future Mr Hollande pledged to improve at the outset of his presidency. If he wants to win their support for a second term, he should address the inequity at the heart of France’s labour market, changing the terms of employment for all and not perpetuating the divide between insiders and new entrants. He must make the case now, if he is to win a mandate to be bolder next time round." The system in both countries, and Spain, Portugal, and Greece is failing the young people. In all of these countries, it is uncommon for the young to be able to find paying jobs, and if they do, the jobs are for short periods of time, perhaps up to a year, and are seldom career oriented. So it is common to find trained lawyers spending their years 25- 35 working retail shoe sales, and occasionally for a few months "working" for free as a legal clerk, with a limited room/board stipend. It is impossible to understand how these people will be able to work from age 35 until retirement at age 65, and fund a reasonable retirement. Young, qualified and jobless: plight of Europe's best-educated generation "'All your life," says Argyro Paraskeva, "you've been told you're a golden prince. The future awaits: it's bright, it's yours. You have a degree! You'll have a good job, a fine life. And then suddenly you find it's not true." Or not so suddenly. Paraskeva left Thessaloniki University five years ago with an MSc in molecular biology. Beyond some private tutoring, paid essay writing ("I'm not proud. But a 50-page essay is €150") and a short unhappy spell in a medical laboratory, she hasn't worked since. Over cold tea in a sunlit cafe in Greece's second city, Paraskeva says she has written "literally hundreds of letters". Every few months, a new round: schools, labs, hospitals, clinics, companies. She delivers them by hand, around the region. She's had three interviews. "I will go anywhere, really anywhere," she says. "I no longer have the luxury of believing I have a choice. If someone wants a teacher, I will go. If they want a secretary, I will go. If they want a lab assistant, I will go.'" Why in the world are we not willing to take any and all of these highly qualified professionals, whether in molecular biology, or any other STEM degree? We have positions which need to be filled, and they have workers which need work. Mr. Obama what is the problem? " According to data out on Monday more than 5.5 million under-25s are without work, and the number rises inexorably every month. It's been called the "lost generation", a legion of young, often highly qualified people, entering a so-called job market that offers very few any hope of a job – let alone the kind they have been educated for. European leaders are rarely without a new initiative. Last week, they pledged to spend €6bn (£5bn) over two years to fund job creation, training and apprenticeships for young people in an attempt to counter a scourge that has attained historic proportions. This week, Angela Merkel is convening a jobs summit to address the issue. Yet still the numbers mount up. In Greece, 59.2% of under-25s are out of work. In Spain, youth unemployment stands at 56.5%; in Italy, it hovers around 40%." We need the competition for jobs, which will allow the best to reinvigorate our businesses, and these young people need jobs. We know these people will integrate into US society. Offer green cards to any of these highly trained professionals who will come, apply for citizenship, and work. "But others point out Europe's "economically inactive" now include millions of young people (14 million, according to the French president, François Hollande) not in work, education or training but who, while technically not unemployed, are nonetheless jobless – and have all but given up looking, at least in their own country. Millions more are on low-paying, temporary contracts. By most measures, the situation is dire. In the words of Enrico Giovannini, Italy's employment minister, this is a disaster all the more shocking because it is hitting Europe's best-educated generation: in Spain, nearly 40% of people in their 20s and early 30s have degrees; in Greece it's 30%; in Italy, more than 20%. The crisis is even more acute because of its knock-on impact: these are often young people with no pensions, no social security contributions, diminishing networks, limited opportunities for independence. High youth unemployment doesn't just mean social problems and productivity wasted; it means falling birthrates and intergenerational tension between parents and their thirtysomethings still living at home. "A wholesale destruction," a Bologna University professor says, "of human capital"." This has been going on for nearly a decade now, and many of these young people will never be able to utilize their skills, they will have been out of the market so long, their skills will have rotted. This is the ultimate wages of socialism, and the economic stagnation which accompanies it. We have the power to do what we did in the 19th century, and provide Europe with a way out, emigration to the US. Only this will be emigration of the educated, the professional, the skilled, which will mean we will need even more immigrants to cross our Southern border to provide services for these new workers. We will also need to slash regulations on businesses, and do a Reaganesque turn to tax sanity. The best course of action would be to impose a national consumption/sales tax to completely replace the individual, corporate income tax systems, and the Estate/Death, and gift tax system. This change would make the tax system simple, and need no IRS. Since all but a few states have sales taxes, the federal government could pay the state sales tax collectors to collect the federal tax, and remit to the federal government. The result would be a federal system which needed only a small legal collections arm, and this could be performed by existing private collection services, and the Department of Justice for legal issues. The cost savings alone would be a multibillion dollar boost to the economy. In this environment, American business would be able to grow the economy, which would allow us to utilize more of the European skilled workers and more of the unskilled labor we obtain from Mexico and Central America. This would allow revitalization of much of middle America which is currently fearful of immigration taking their jobs, the Trump voters. This would be a win/win/win/win approach. But Obama has had 7 years to figure this out, and he has not done so. Perhaps the next President will, but not if it is Hillary, she is the status quo, war/hawk President. Sanders is a fool, too stupid to know which side the bread the butter is on, and Cruz is an enigma in this regard. Trump could likely be persuaded, but that would require someone from the Republican party addressing this issue, that seems a bridge too far in the current climate. Economic growth is the only solution, and will provide the funds necessary to solve our gargantuan debt problem, along with our stagnating economy, and its consequences. Not holding my breath, we are blessed with the worst political class in human history. Instapundit on the Pension Crisis
Here is the Mead article: The Pension Crisis Keeps Getting Worse "The $2 trillion public sector pension shortfall created by decades of interest group bullying and political fecklessness is not going away on its own. In fact, according to a recent report from a major consulting firm, it’s getting steadily worse. The Financial Times: The health of the US public pensions system is deteriorating. The latest figures reveal that retirement plans have less than three-quarters of the assets they need to pay current and future retirees. … According to Wilshire Consulting, an institutional investment advisory company, state-sponsored pension plans in the US had just 73 per cent of the assets they needed in mid-2015, down from 77 per cent in 2014." Unsettling, but consistent for our current crop of craptacular politicians. "At least some state and local governments are taking steps to reform their public pension systems before it’s too late. For others, that moment may have already passed. It’s probably only a matter of time before the most indebted states and localities start going hat-in-hand to the federal government requesting massive bailouts. Time for think tanks, academics, and policymakers to start preparing for this eventuality: Should Congress be prepared to offer any assistance, and if so, on what terms?" This is not the subject for a federal bailout. The states need to come to Jesus on this issue with their own voters finding responsible solutions. It seems likely that this could be catalyst for great positive change in the public sphere, if it is allowed to work itself out. If the federal government simply offers bailouts, nothing will be learned, except how to petition, hat in hand. If the various states are allowed to experiment with solutions, we are likely to see valuable change. Progressives are not ready for the damage this will bring to the tattered remains of progressivism in the US. "At least some state and local governments are taking steps to reform their public pension systems before it’s too late." Two Cheers for Arizona ". . . [T]he Arizona Capitol Times reports on the State Senate’s recent vote to make it more difficult for localities in Arizona to restrict AirBnB apartment rentals without permission from the state government, part of Ducey’s “pre-emptive strike” on sharing economy regulation. (In his State of the State address in January, Ducey said that “Arizona should be to the sharing economy what Texas is to oil and what Silicon Valley used to be to the tech industry.”) To be sure, the full slate of pension reforms (which include changes to the cost-of-living index and requiring new employees to create their own retirement accounts) has yet to be fully implemented, and the AirBnB bill has yet to pass the House. But if Arizona does manage to execute these changes successfully, and they yield the kinds of returns Ducey is hoping for, the Grand Canyon State could plausibly offer itself as a model model for how to slay the worst features of blue model governance—in particular, crony capitalist carveouts and budget-busting union payoffs—and pave the way for a social system better adapted to the economic and demographic realities of the new century. We’ll be watching." Kill the pensions by shifting current workers to a defined contribution plan. Calculate how much each of these worker had vested in the pension system and deposit that amount into their new defined contribution account. Then find a way to live with the existing pensioners. This will not be easy, but the federal government does not need to step in and bail out these states. Oh, and you Oregon public pensioners, don't get too comfortable, this specter also comes for you. Plan accordingly. |
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