We spend a lot of time talking about the public pension crisis because, well, it’s a massive $5 – $8 trillion dollar overhang on the economy and one which will undoubtedly result in some heartache for investors at some point in the future. Unfortunately, there are some problems that are too large for even U.S. taxpayers to fix and, with an underfunding of $52,000 (mid-point) per household, somehow we suspect this is one of them.
Of course, our nation’s various governmental institutions aren’t the only ones to have unwittingly created massive ponzi schemes from which there is no escape. In fact, as Bloomberg points out today, as of the end of 2016 over 90% of the top 200 corporate pensions in the S&P were unfunded to the tune of $382 billion.
Here’s a look at the funded status of the top 20:
Meanwhile, just the top 20 corporate pension funds are underfunded by over $100 billion.
So what happens when these massive corporate obligations become so underfunded that they can’t possibly ever be fixed? As the 400,000 pensioners in the Central States Pension Plans are all too familiar, the obligations get handed over the Pension Benefit Guaranty Corporation (PBGC), an entity which is nearly bankrupt itself, at which point payouts are slashed leaving retirees with about half of the monthly income they expected in retirement. Per CBS:
February was a bad month for Larry Burruel and thousands of other retired Ohio iron workers. His monthly take-home pension was cut by more than half from $3,700 to $1,600.
Things have been rough in the Rust Belt, but this was a particularly powerful punch in the pocketbook for Burruel, who started in the trade at 19 and worked 36 years before opting for early retirement to make way for younger workers. Unfortunately, this sagging industry doesn’t have enough younger workers to pay for retirees like Burruel, whose pension plan is in what the U.S. Treasury Department calls “critical and declining status.”
Burruel and the 400,000 members of his Central States Pension Fund are the canaries in the coal mine as far as pension cutbacks go. At least 50 Midwestern pension plans — mostly the kind jointly administered by trustees for a labor union and a group of employers — are in this decrepit condition. Several plan sponsors have already applied to the Treasury Department to cut back retirees’ allotments.
This cross-section of America includes more than a million former truck drivers, office and factory employees, bricklayers and construction workers who are threatened with cutbacks that could last the rest of their lives.
Who could have guessed that the efforts of our government and largest corporations to backstop the investing risk of millions of households across the country would end so poorly?