Early Bailout Warning! Reckoning Comes for U.S. Pension Funds as Investment Returns Lag

Many people still don’t know that the bailout of GM and Chrysler was about bailing out politically important UAW union members with your money as much as it was about bailing out of 2 inferior car manufacturers with your money. (Though I must admit I had a Town and Country van that was pretty good – mostly. Not like my Honda, but still pretty good.)

For years prior to the 2008 Crash financial people had hemmed and hawed about the unsustainability of the auto worker’s pensions. Every 6 months there were stories about how the GM system was going to fail. How GM was “an insurance company that just happened to make cars,” etc. Then when the crisis hit the unions called in their favors. You the tax payers bought many a nice retirement home on Florida’s “Redneck Riviera.”

This is a template that other unions, particularly government employee unions are studying. The unions know that the benefits they “negotiated” (with politicians paid for by public employee union money of course) are not in the realm of reality. But this doesn’t mean that the unions will ratchet back their unrealistic demands. No, they will seek bailouts.

Watch. Once the next recession rolls around the public employees in California, Illinois, Connecticut and other profligate states will want the rest of us to pay for their often lavish pensions. They will cry and moan and boo hoo in an effort to get their way. However, this time Americans should tell these folks to take a hike. California might owe you money. We in realityland owe you nothing, nada, zilch, 0. It’s not our fault you people convinced yourselves that you were going to ride a unicorn into retirement. Unicorns, as we have said before aren’t real. And neither are your retirement expectations.

My advice is that you make adjustments to your lifestyle now because there is no way me and my kids and their kids are paying for your golden years. Should have saved more. Sorry.

(From Bloomberg)

The unfunded liabilities of U.S. public pensions — which measures how much more they need to cover all the benefits that have been promised — are already rising. The obligations stood at $1.95 trillion at the end of June, an increase of $510 billion since the end of 2013, according to the Fed’s figures.

The resulting strain has led to credit-rating cuts to New Jersey, Kentucky and Chicago, which in 2015 was cut to junk by Moody’s Investors Service. Illinois, the lowest-ranked state, has been downgraded twice by S&P since 2013 and three times by Moody’s.

In places like Chicago, where the pensions are short a combined $34 billion, the dwindling returns may diminish efforts to pull them out of the hole.

Mayor Rahm Emanuel last week pushed a plan through the city council to raise water and sewer levies to fund the municipal workers’ pension, its most underfunded. Chicago will now pay about $2 billion more to that pension than previously planned over the next six years.

But that doesn’t take into account the impact if investment performance falls below target. The municipal fund assumes returns of 7.5 percent, while only earning 1.8 percent in the year ended in December, according to actuaries. That’s left it at risk of running out of money, despite the injection of taxpayer money.

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http://www.againstcronycapitalism.org/