Pensions are Failing

This title simply reflects the attitudes of the courts who are ruling in favor of companies faced with budget crisis: 1) Keep the company doors open while keeping the current workforce employed, or 2) shutting the doors, laying off the workforce to pay the pensioners.

When these are the two choices before the courts, they are ruling in favor of the companies and the younger families, thereby sustaining the economy rather than ruling in favor of the retirees.  Sad?  Extremely!  But even more frustrating is that those paying into the pension are powerless to stop. Meaning, those in pension programs cannot discontinue their contribution, even though the pension funds may not be available when they retire.  [Sadly, Social Security is failing too!]

Case in Point

I have many clients (as well as prospective clients) enrolled in the CalPERS and CalSTRS pension program in California.  For years, CalSTRS has enjoyed rave reviews (and fantabulous projections of stability and longevity) even in the face of the two recent recessions.  (CalPERS has not fared as well.)

Through these years, in the back of my mind, I have second guessed the “actual soundness” of the projections and reviews, when in fact all of the funds around them are crumbling; even the very state in which they are based has crumbled financially:  So how could the numbers be so healthy and the participants be so happy and confident in these programs?

I began looking deeper, discovering that the CalSTRS formulations, configuration, and most importantly it growth projections are based on the same calculations of CalPERS—CalSTRS sister program.  A recent article cites the California State Controller’s office showing substantial deficits in both pension programs:  VERY SUBSTANTIAL DEFICITS!

The 2010 unfunded liabilities (according to the State Controller) for CalSTRS is $40.5 Billion (the admitted deficit), while outside projections put the deficit as high as $141.7 Billion.  It should be noted that California’s total budget for fiscal year 2009 2010 was $89.5 Billion.  And Yes! CalPERS only adds to this shortfall.  The admitted underfunded liabilities for 2010 were $35 Billion, while projected shortfalls are as high as $149.9 Billion.

As future pensioners begin to realize the awful situation and begin contemplating whether or not to continue funding their retirement that may not be available: Do you think they have a choice?  No.  They have no choice, other than starting a new career an begin investing into a more promising retirement vehicle; or forming lobbyist groups to hopefully, in time, convince those in power to change their course from the dead end ahead.

Related Thoughts

Do pensions have a track record of failing? Yes—an extensive one.

Are there safer, more sound/stable approaches to retirement? Yes.  Funds that are managed by firms that have existed more than 300 years—longer than the U.S. itself—surviving the world’s economic crashes, calamities, and world wars.

If you’re in a pension: DIVERSIFY!  And, demand answers and audits of your fund administrators—and verify them!

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