by Dave Kranzler, Investment Research Dynamics:
The public pension fund system is approaching apocalypse. Earlier this week teachers who are part of the Colorado public pension system (PERA) staged a walk-out protest over proposed changes to the plan, including raising the percentage contribution to the fund by current payees and raising the retirement age. PERA backed off but ignoring the obvious problem will not make it go away.
Every public pension fund in the country is catastrophically underfunded, especially if strict mark-to-market of the illiquid assets were applied. Illinois has been playing funding games for a few years to keep its pension fund solvent. In Kentucky, where the public pension fund is on the verge of collapse, teachers are demanding a State bailout.
If the stock market were sustain a extended decline of more than 10% – “extended” meaning several months in which the stock market falls more than 10% – every public pension in the U.S. would collapse. This is based on an in-depth study conducted by a good friend of mine who works at a public pension fund. He has access to better data than “outsiders” and I know his work to be meticulous. Please note that the three big market declines since August 2015 were stopped at a 10% draw-down followed by big moves higher. The current draw-down was stopped at 10% but subsequent outcome is to be determined. My friend and I are not the only ones who understand this:
The next phase of public pension reform will likely be touched off by a stock market decline that creates the real possibility of at least one state fund running out of cash within a couple of years. – Bloomberg
I know a teacher in Denver who left her job that was connected to PERA in order to take a lump-sum payout rather than risk waiting until she retired to bankrupt pension plan. She took a job in the Denver school system, which is not part of the PERA system. She’s actually thinking about teaching in Central America, where there’s high demand for English-speaking teachers and the pay relative to the cost-of-living is much higher:
“Teaching sucks right now. Teachers are underpaid for the work we’re doing. After all of these years, I’m making about $60,000. That’s BS! I have a masters. Truthfully, the classroom is burning me out right now. The f#cked up world is spilling into kids’ lives. They’re largely defiant and off-track. I don’t have the energy to try to streamline whole classrooms.” In reference to the pension system: “When the mother f#cking-f#ck is any of this going to be corrected?!?! I am beyond mad. Ecuador has become an option, because this country is beyond f#cked up.”
Unfortunately, I was compelled to answer with the truth – a truth she already knows: “It won’t be corrected. The system will have to collapse and then who knows what will happen. Criminals run everything now and the people who are supposed to enforce Rule of Law are well paid to look the other way. This has been building for at least 2 decades. It doesn’t help when the President is caught shoving a cigar up a staff interns vagina and then a joke is made of it in Congress. “Is oral sex, sex?” Answer: “it depends on what the meaning of the word ‘is,’ is.”