Pension funds in the US could be close to a collapse. There is an estimated $1.9 trillion shortfall in U.S. state and local pension funds because of low-interest rates and a sideways US stock market. Even stocks falling overseas is a problem for pension funds.
Credit Suisse published the chilling chart below on the funding gap at the largest 100 US pension funds.
Pensions count on annual investment gains of more than 7 percent to cover much of the benefits that come due as workers retire. But public plans had a median increase of 1 percent for the year ended June 30, the smallest advance since 2009, when they lost 16.2 percent, according to the Wilshire Trust Universe Comparison Service.
Now it seems like there is a run on the Dallas Police and Fire Pension as employees try to claim benefits before the system becomes insolvent.
Rhode Island plans to scale back its investments in hedge funds by more than $500 million over the next two years, and reallocate those funds to more traditional investments with lower fees.
Pension funds like Rhode Island are starting to be more defensive and are hunkering down. The problem though is that defensive US Treasury bonds mean way below 7 percent returns which means more shortfalls in funding are coming.
There’s no way pension funds can stay above water in an environment with low-interest rates and with equity markets at valuations that are sky high.
But wait, Democrats say everything is good, just look at consumer confidence that came out this week at 104.1.
There is massive offshoring of good paying US jobs, stagnant wages, soaring costs of health care and education, contraction in manufacturing, falling retail sales, and consumers pensions are dangerously close to collapse. Meanwhile, consumer confidence is hitting multi-year highs? Consumer confidence is starting to look like just another tool of public manipulation that’s out of touch with reality on the street.