Congress quietly formed a committee to bail out 200 pension funds

Simon Black–The US pension system has gotten so bad, Congress is actually planning for its failure.

As the government was working on the recent, new budget deal and subsequent boost in government spending, Congress quietly snuck in a provision that forms a committee which would use federal funds to bail out as many as 200 “multiemployer” pension plans – where employers and labor unions jointly provide retirement benefits to employees.

As is often the case, this rescue “plan” is too little too late. The US pension system is beyond repair. And if you’re depending on pension income to carry you through retirement, it’s time to consider a Plan B.

Before explaining how dire the situation actually is, let’s take a step back…

Pensions are simply giant pools of capital used to pay out retirement benefits to workers.

Typically, employers and employees contribute a percentage of the employees’ salary to a pension throughout his or her career. Then, upon retirement, the pension is supposed to pay a fixed, monthly amount to the retiree.

There are both government and corporate pension plans.

Boston College estimates the nation’s 1,400 multiemployer plans (corporate) are facing a $553 billion shortfall. And around one-quarter of those are in the “red zone,” meaning they’ll likely go broke in the next decade or so.

But Congress’ committee, assuming it works, wouldn’t even rescue the red zone plans, much less the remaining 1,200.

And it doesn’t even begin to address the real problem – the $7 trillion funding gap faced by the government’s own pensions.

Congress is stepping in because the Pension Benefit Guaranty Corporation (PBGC) – the pension equivalent to the Federal Deposit Insurance Corporation (FDIC) – is completely insolvent.

Like the FDIC, the PBGC is an insurance program funded by premiums paid by its participating members (pensions). Its entire income is made up of premiums collected and the investment income it earns on those premiums.

So, as the markets crash, not only will the PBGC’s portfolio get slaughtered… so will those of the pensions it guarantees (which will then require more funds). And as these pensions fail, the PBGC will collect less in premiums. It’s a vicious circle.

But things are plenty bad already.

The PBGC, which only covers corporate pensions, had a $76 billion deficit in 2017. It has total assets of $108 billion on its books compared to potential loss exposure of more than $250 billion.

By its own estimation, its fund to cover multiemployer pensions (which makes up $65 billion of the deficit) will be insolvent by 2025.

Pensions are in such bad shape today for the simple reason that investment returns are too low. And pensions can’t cover their future obligations.

Pension fund managers invest in assets like stocks, bonds and real estate in hopes of generating a safe return.

Most funds require a 7%-8% return in order to meet their future liabilities.

But with interest rates near record lows, these funds are having to take on more risk in order to meet their minimum return requirements. They’ve reduced their bond allocations and started buying more stocks, private equity and other riskier assets.

Some funds, like Hawaii’s pension fund, went even further and dabbled in the incredibly risky strategy of selling put options. By selling a put, you collect a small premium if markets stay calm or rise. But you’re exposed to unlimited losses if markets crash – like they did when the Dow fell 2,400 points in a week last month.

At the end of last year, equities made up nearly 54% of public pension fund portfolios. The $209 billion New York State Common Retirement Fund has over 58% of its assets in stocks. Kentucky’s $20 billion pension for teachers is 62% in stocks.

These giant funds, which are supposed to pay for public and private employees in retirement, are piling into stocks at record high valuations. And when the volatility hits, it will be devastating.

Consider that America’s largest pension fund, The California Public Employees’ Retirement System (CalPERS), lost 5% of its assets ($18.5 billion) in just 10 trading days leading up to February 9.

Pension funds should never experience that kind of volatility. But the current macro environment is forcing them to make dumb decisions in hopes of generating a minimum return.

Luckily, if you’re a smaller investor, you still have plenty of solid investment options available – even if you’re investing with tens of millions of dollars.

I’ve told our Sovereign Man: Confidential readers about an asset-backed loan earning 13% a year. And they’ve already safely earned millions of dollars in interest.

You can also invest in super-safe stocks trading below their net cash, like Sovereign Man’s Chief Investment Strategist, Tim Staermose, does in his service, The 4th Pillar.

But these strategies get more difficult if you have hundreds of billions of dollars.

So these pension funds are forced to buy stocks and real estate at all-time highs. It stretches valuations and creates huge risk.

Still, pension fund allocations to equities are near all-time highs.

So, ask yourself, what will happen to your retirement if the stock market falls just 20%? What about 50%?

There’s zero chance these funds will be able to pay out retirement benefits. They’re taking huge risks at all-time highs and they have zero downside protection (the PGBC is broke).

It’s smart to consider some other options like a self-directed IRA, solo 401(k) or a SEP IRA – which allow you significant latitude in making better, safer and stronger investments.

Plus, they allow you to put more money away toward retirement before tax. And there’s no downside to that.

You’ve got make long-term plans for retirement. The pension system is broken. So the time to take action is now.

8 Replies to “Congress quietly formed a committee to bail out 200 pension funds

  1. Sometimes, wankees I wounder if I used an sledge hammer to beat it into you, would that even help, your entire SS is ruined by your Gov. it started with Regain and ends up with another crony capitalist, Trump.
    To then whine, about an half of an trillion, is peanuts compared to what your Gov. thru various schemes have wasted thru the decades, have sucked t away and have been replaced with worthless IOU.

    Second, the difference between SS and not SS is Africa, and you still dont get it do you, we may agree on the sudden years escalation of expenses, but that is not due to SS, or the American people, where your payments is the same as Norway in fact, but the in flux of negative assets, as refugees, where they becomes an neto over load to the SS system.
    In Norway the claim the same, SS is killing us, while the same Gov. gives Billioners Billions in tax releasing, throws the bill on SS.
    Throws away billions on Foreign Aid, where nobody knows where the money goes.
    Foreign interventions, Norway paid lord knows how many millions to the Beast from Little Rock.
    In Wars, Norway is also supporting “rebels” is Syria, with Sepcs and sells weapon systems to the Saudi-barbarians.
    Idiotic sanctions cuts us from markets, stupidity in real time, committing daily economic harakiri.
    Etc, etc, etc.
    All this, totally unnecessary, is just sucking cash out of our country, and costs as much as the entire well fare system, but in stead of debating reality, we end up shoveling shit, and of course, its the poor and sick peoples fault of everything.
    Yeah, blame the poor, right, the ugly truth is this wankees, SS pays back, this money goes nowhere other than straight back to the society at large by the use of it, this is the truth, giving money to billionaires is insanity in real time, they mean nothing, do nothing and have no impact what so ever other then been rich.

    Yup, I could go on for an while but leaves it here, and to be honest, you are been butt f…. so hard is ridiculous, and you simply cant see it, can you.
    I could tell you this, if you did the right things, your country will be on its feats within some few years, but no, in stead you support an system that is robbing you blind, and in stead of focusing where goes the f….. tax money you jump on the bonkers “useless eaters” right winged meme.
    The same people whom thinks, in Norway, that Tick born issues as Borieliese is an decease that was invented by the lefties to suck well fare money out of the tax payers pockets.
    They have no shame at all,screams on top of their lungs and points in every f… direction but to the real deal, where do our f…. tax money go, do you even know.
    Yeah, the same scums whom have no problems with an 500 000 children killed, that was just, uh…. their fault, not ours, right, right.
    Both of you, dont know much do you, I am not impressed.


  2. Right on mikael… a QE infused directly into the pension program rather than the stock market could produce results or how about the FED declaring the interest on the debt of 21 trillion be erased permanently.

    1. It was the (((Rothschild))) 3rd “Bank of the United States” or so-called “Federal” “Reserve” that handed us the $21 TRILLION of ODIOUS, mathematically-never-repayable so-called National “Debt” in the first place. You don’t seriously think that the so-called “Fed” will simply ERASE that “Debt”, do you? It’s that “Debt” which subsidizes the Western 1% COUNTERFEIT “Jews” and their entire con-fiscatory system.

  3. The US government bailed out banks, housing and student loan programs. SO what is the problem, it is not congresses money

    1. What you are saying is that the U.S. Taxpayer should, via the U.S. Government, take a loan from the “Fed”, to bailout the pension funds. Is that correct? Which would ADD to the $21 TRILLION of National “Debt”.

      Umm… It was the (((Rothschild))) 3rd “Bank of the United States” or so-called “Federal” “Reserve” that handed us the $21 TRILLION of ODIOUS, mathematically-never-repayable so-called National “Debt” in the first place. You don’t seriously think that the so-called “Fed” is going to ADD TO THAT “DEBT” do you? It’s that “Debt” which SUBSIDIZES the Western 1% COUNTERFEIT “Jews” and their entire con-fiscatory system.

      You know what, they just might do it. And, then everyone under retirement age right now, and every day in America’s future, will have to pay for it ~ in perpetuity.

  4. America needs to print its National Currency as “UNITED STATES NOTES” via the U.S. Treasury, with NO INTEREST (USURY) attached, thereby totally by-passing the so-called “Federal” “Reserve”, or 3rd (((Rothschild))) “Bank of the United States” that has operated in this country since Dec. 23, 1913 ~ over 100 years now.

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