U.S. Pension Debacle Goes from Bad to Worse

You know I’ve talked about the looming wave of public pension debt and the damage caused by unrealistic expectations and mismanagement.

But the fact is, things may be much worse than even I anticipated.

Recent findings from Stanford University and several state agencies indicate how dire pension underfunding really is.

Consider the following …

Stanford University’s Pension Tracker estimates California’s state pension was underfunded by $1 trillion in 2015, which equates to $93,000 per California household.

That’s almost as bad as Illinois, where the ratio of unfunded pension liabilities – estimated at $130 billion – to financial resources stands at a whopping 37.6%.

Illinois government-worker pensions now consume more than 25% of the state’s budget, more than virtually every other item, and they are crowding out everything from education to social services.

At risk is the state’s bond rating that is inching toward junk status. AND its shrinking tax base.

So, what happened?

Cause #1: Ludicrous return assumptions. With last year’s CalPERS return of 0.6% falling well short of the 7.5% forecast. The blowback now has top investment fund managers suggesting that return forecasts should be lowered.

Because of the shortfall, retirement benefits in Los Angeles consume one out of every $5.00 in the general fund budget. And that crowds out funding for other public services.

Cause #2: Overpromise. That is what happened in Dallas, where a lucky few in the Dallas Police and Fire Pension Fund (DPFP) took advantage of the Deferred Retirement Option Plan (DROP). This program, aimed at keeping veteran members on the force, offered a savings account paying a guaranteed rate of 8% per year. Also included was a 4% annual inflation benefit.

Pension crisis continues to grow.

Cause #3: Fraud. Soured real estate investments in Dallas’s investment portfolio prompted an April 2016 FBI investigation (raid) that ultimately led to a 32% markdown in their entire real estate book.

As a result, the Dallas Police and Fire Pension Fund (DPFP) is underfunded by $3.0 billion. Directors at the fund are now seeking a $1.1 billion infusion from tax payers to keep the fund afloat.

What does this mean to you?

Fraud and mismanagement in the state pension fund systems can no longer be swept under the carpet. My models indicate that the day of reckoning is quickly approaching – sometime in the second half of 2017.

This crisis will fuel further distrust in government, guarantee higher taxes and — along with other forces, international in nature — put us closer to a sovereign debt crisis unlike anything we’ve seen before.

The way I see it, the forecast is for pain – from a nasty cocktail of higher taxes, reduced retirement benefits and less money for public services.

This also plays into a loss of confidence in government and plays into the war cycles I’ve warned you about as well.

My advice: Hold onto your hats. And make sure you have solid investment advice like my members enjoy.

Stay tuned and best wishes,



Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

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Comments 22

miguel December 9, 2016

Larry may you show us the chart update for the old an oil. The old made the inverse that is why is so interested an the oil 20 december we wait a low but watching the chart will be between 43 and 45 no lower. And 13 february 2017 we expect another low and change cycle, but watching the chart this low I do no see shall be lower that 39 or 40.I understood the low was going to be lowet than 26 .Is that correct? Thank you veru much


Brian McGann December 9, 2016

Wow, time date and the outcome. this just can,t get better then that. We have no one to blame but ourselves for not protecting ourselves.


Tom December 9, 2016

State and city pensions promising more than they can deliver. Who are the overpaid geniuses that run these things? Just like DC, filled with fraud and corruption. Another financial meteor is headed our way, I agree, and it will be bigger than the one from 65 million years ago that took out the dinosaurs. The FED will be clueless as usual and the suffering will be immense.


H. Craig Bradley December 10, 2016

VOTERS AND CITIZENS BARE THE COSTS I suggest stupid, ignorant, or greedy residents who don't much keep-up with what is going on of primary importance in Cities like Los Angeles are the biggest reason behind pension corruption. So, reductions in City Services ( Libraries, Parks, Garbage Pick-up, Street Maintenance, Courthouse Staff) are the price they will end-up paying, as there is really no escape in the end. If Police Dept. get cut, then longer response times can also be expected for priority one calls from emergency dispatch. Other calls will receive much delayed responses. Crime, especially property crime will climb, pushing-up homeowners insurance premiums due to a rise in theft claims. So, what goes around eventually comes around. We never really learn from our mistakes.

Tom Catalanotti December 9, 2016

UnFortunately the higher markets allow the politicians and the unions to continue to get away with it, I hope the govt pensions are cut . This is 1 more reason why the mkt will go up. It may come down but it will go back up, especially for this reason that you are speaking of, underfunding, of gov't and private pensions should not be allowed.


JD December 9, 2016

The politicians negotiating (that's being kind) the pensions are inept, stupid, or crooked or perhaps all 3. The tax payers keep letting them get away with it including when they hide the severity of the problem by estimating unrealistic returns. Apparently there's no oversight and no consequences...therefore there's no responsibility. Jail time may well be the only thing that could get this in line.


Retired December 9, 2016

The problem is that the politicians don't want to face the voters if they raise taxes. So to provide the funding for the services that the public demands, they take it out of the prefunding pensions, figuring that the shortfall was going to be somebody else's problem after THEY retire from office. And John Q. Public chose to ignore this.

Eagle495 December 9, 2016

There are three carriers that are very dangerous and require a retiremennt at 30 years. Those carriers are those of Soldiers, Police Officers and Firefighters. Studies have found that beyond 30 years, the line of duty deaths go to the moon and therefore the 30 year cut off. For most, their bodies are damaged and used up. The fact that the govening bodies so mismamaged the retirement funds is not the fault of those who put their lives on the line for the rest of the citizens. That said, there was not a problem before Reagan and the Republican Revolution took office and gave HUGE tax cuts to the wealthiest 3% amongst us.... I'd call this a political problem rather than a worker problem... Perhaps readers will consider that when next they go to the voter booths


Bill December 10, 2016

Eagle, come on, public employees have been promised way to much of tax payers money. The is a good example of government mismanagement of tax payers money and employee contributions. State PERS system are nearly all in trouble and expect the taxpayers to bail them out. The real problem is to many government employees doing way to much regulatory interference with the private sector. I.e. The host (the private sector) has to many parasites (the government sector) and is presently on it's knees and will shortly be on it's side. The host is being consumed!

Mike December 9, 2016

And the other shoe to drop is the corporations sitting on a record pile of cash, most of it held off shore. We do have a day of reckoning on the way and I am sharpening my pitchfork.


roger bell December 9, 2016

do you have any info on Louisiana pension


GARO December 9, 2016



ron goddard December 10, 2016

omg!! will it happen in oz larry? we are real dummies here. the 'new' treasurer, scott morrison already has the razor out and its hurting bigtime for over 330,000 oz pensioners. maybe he can apply the razor to his throat lol. but a razor is needed for the generous pensions and perks paid to ex politicians and more to come. it seems that the politicians look after 'their own' when it comes to stringent measures. one can imagine the 'hue and cry' .if he even suggested such a thing! cheers, ron


Chris December 10, 2016

Let's hope the populist movement says no to higher taxes. This occurred somewhat in Detroit's bankruptcy. They had to sell assets but as I recall they have reduced payments to pensioners. Unions, CEO's afraid to say no and have a strike, and pension management companies are responsible for this not Ronald Reagan. He cut taxes but that has nothing to do with unreasonable and unsustainable demands.


Eagle495 December 10, 2016

Sorry Chris, But I have to say, B.S.! Look at deficit and debt charts and you will find that both exploded after those Reagan Tax cuts to the wealthiest 3% (who funded his campaign). Reagan, had not the guts to cut Federal Spending, even when Republicans dominated the Congress. To make things even worse, he INCREASEED Federal spending. And every Republican Admisistration and Congress since then has done the same (the only exception was Democrat Clinton who leveled off the debt and deficits). Then came the Republican Majority Congressional actions called GATT and NAFTA which moved millions of Middle Class jobs off shore and the Republican removal of The Glasss-Steagall Act (which allowed the return of 1929 style trading) which brought the Crash of 2007-2009 and here we are in Defict/Debt Pergatory....

H. Craig Bradley December 10, 2016

GETTO-IZATION OF URBAN AMERICA The fate of incompetent or corrupt cities and their respective public pension funds will have to be settled eventually in Federal Bankruptcy court, as was the case in Detroit, Mich. The local voters are just too weak and divided to demand accountability, preferring to defer the day of accountability as long as possible and pretend it does not matter ( to them ). Such Apathy will have a high cost, among them a decline in public infrastructure. This in turn will cause businesses to relocate or close and further economic decline. The common assumption that residential property prices must go up will be proven wrong in such (foolish) jurisdictions.

Dave E December 10, 2016

These underfunded and unfunded liabilities will assure that the currency is debased. No political will exists to address the problems. Will print money to meet the obligations. The young will turn on the elder as their future has been sold.


len December 10, 2016

Really thanks for focus on this. Sadly, it is very old news, the public will not hear it. Will not read and evaluate the very good research out there, rely instead on sound bites , dubious news. Recommend reading "While America slept" by Bernstein, i think, which analyses how pensions and benefits to unions in NY, under the MTA, police in san Diego and Auto workers in Detroit, brought those cities ot the verge of bankruptcy. One Republican, other two Democrat. Common theme is mollifying workers with incredibly rich pensions, while holding the line on wages. The ultimate win win for a politician, looking tough in the short term while kicking the can down the road. There was a wonderful time magazine devoted to the problem about 10 years ago. One factoid was the conclusion that pensions for government workers are never made true, , unlike the private sector, because the judges themselves are beneficiaries of pensions. Talk about trying to drain the swamp!! good luck with that. As in so many things, the private sector tax payer, particularly entrepreneurs gets it in the teeth. I am no fan of trump but if he truly can restore a balance towards businesses, especially small businesses and the private taxpayers, i will eat my hat, very gratefully.


Dan S December 10, 2016

It will be a cold day in heck before any honest worker should pay more, in any kind of taxes or fees, to keep these worthless idiots pension afloat. As posted earlier this stupidity is what is converting the U.S. currency into azz wipe paper.


Whbahr December 12, 2016

W Bahr, An authors name that I can not recall wrote- "once an economy has reached 75% debt to GDP, it will never recover to its original format". Never in written history has that been more true than our present time and present basket of deplorable economies.


Michael December 12, 2016

The can will be kicked again and again.... Stocks now ballistic should help pensions. Maybe not the whole value but it will keep the devil away for awhile. It really does not matter until it does. That's a long way off. Go enjoy the holiday season. The pensioners will enjoy their checks.


Dick December 12, 2016

Look at wallstreet if you want the real culprit. They have bought every gov agency and control All gov action . Who runs wallstreet, runs the country and the Fed. Who runs Wall Street and the Fed? Think it out .