A $ trillion Sure Thing

In yet another insightful article about Public Pensions, Bloomberg paints a dire picture of the industry without calling it what, it really is: a fraud.

The Teacher Retirement System of Texas, the seventh-largest public pension fund in the U.S., reports each year that its expected rate of return is 8 percent. Public records show the fund has had an average return of 2.6 percent during the past 10 years.

The nation’s largest public pension fund, California Public Employees’ Retirement System, has been reporting an expected rate of return of 7.75 percent for the past eight years, and 8 percent before that, according to Calpers spokesman Clark McKinley.

Its annual return during the decade from Dec. 31, 1998, to Dec. 31, 2008, has been 3.32 percent, and last year, when markets tanked, it lost 27 percent.

‘It’s Pitiful’

Bloomberg

The article goes on say that through accounting gimmicks and tricks, many Public Pension Funds are papering over losses and sell bonds to cover up funding shortfalls. Who is buying these bonds---- probably other Public Pension Funds? But, the key thing here is that most of these bond sales have been losing bets----in theory trading cash for future losses.

The Chicago Transit Authority retirement plan had a $1.5 billion hole in its stash of assets in 2007. At the height of a four-year bull market, it didn’t have enough cash on hand to pay its retirees through 2013, meaning it was underfunded to the tune of 62 percent.

When Public Pension Funds base benefit payout rates on about 8% expected return, but on average, only manage to return about 3%, within 15 years they are going to deplete all of their capital asset base, at just about the height of retirement peak. Additional market losses will further aggravate this relationship---many could blow up within only several years.

In the end, we're going to see the end of large Public Pension Fund inflows into stock market currently allocated at 60%. How states deal with this $1 trillion blow up, is going to go into history books.

This is another reason why investing in stocks for long periods of time needs to be tied into overall credit expansion cycle---like everything else!

Public Pension Blowups---3/2/09

Edited by linrom1, 03 March 2009 - 02:57 PM.

In yet another insightful article about Public Pensions, Bloomberg paints a dire picture of the industry without calling it what, it really is: a fraud.

The Teacher Retirement System of Texas, the seventh-largest public pension fund in the U.S., reports each year that its expected rate of return is 8 percent. Public records show the fund has had an average return of 2.6 percent during the past 10 years.

The nation’s largest public pension fund, California Public Employees’ Retirement System, has been reporting an expected rate of return of 7.75 percent for the past eight years, and 8 percent before that, according to Calpers spokesman Clark McKinley.

Its annual return during the decade from Dec. 31, 1998, to Dec. 31, 2008, has been 3.32 percent, and last year, when markets tanked, it lost 27 percent.

‘It’s Pitiful’

Bloomberg

The article goes on say that through accounting gimmicks and tricks, many Public Pension Funds are papering over losses and sell bonds to cover up funding shortfalls. Who is buying these bonds---- probably other Public Pension Funds? But, the key thing here is that most of these bond sales have been losing bets----in theory trading cash for future losses.

The Chicago Transit Authority retirement plan had a $1.5 billion hole in its stash of assets in 2007. At the height of a four-year bull market, it didn’t have enough cash on hand to pay its retirees through 2013, meaning it was underfunded to the tune of 62 percent.

When Public Pension Funds base benefit payout rates on about 8% expected return, but on average, only manage to return about 3%, within 15 years they are going to deplete all of their capital asset base, at just about the height of retirement peak. Additional market losses will further aggravate this relationship---many could blow up within only several years.

In the end, we're going to see the end of large Public Pension Fund inflows into stock market currently allocated at 60%. How states deal with this $1 trillion blow up, is going to go into history books.

This is another reason why investing in stocks for long periods of time needs to be tied into overall credit expansion cycle---like everything else!

Public Pension Blowups---3/2/09

Here in Connecticut the Teachers pay the same amount into their pension fund as we pay into Social Security - but the State has failed to pay its contribution in 11 years. Had the teachers paid into Social Security, the state could not have failed to pay its share. I have no idea how the teachers got out of Social Security altogether but I hope they go down in a roaring fire ball. They are so arrogant - and hold the towns hostage every year with absolutely no transparency in their enormous budgets. My town has one education employee for every 6 children. Can anyone say - ARE YOU NUTS or so stupid that you can't operate more efficiently than that - if the latter is the case they are obviously too stupid to even recognize their own incompetence and should be nowhere near children or a classroom. State employees do pay into Social Security and in addition have a separate pension program that they pay into - which is also unfunded fully and the state is bonding both the teachers pension and the employees pension. I have been saying for months the next shoe to drop is the municipal and state bond funds.
Mary Anne