Kentucky Teachers "Outraged" At Thought Of Accepting Same Retirement Plans As Private Sector Workers

Last week we noted that, after months of planning and cogitating over how to address the failing public pension systems in their state which are somewhere between $40 and $80 billion under water, Kentucky"s Governor Matt Bevin and the leaders of the General Assembly’s Republican majorities released their highly-anticipated "plan" which turned out to be nothing more than the same old "kick the can down the road" approach to "pension reform" that has perpetuated the pension ponzi in this country for decades while doing absolutely nothing to address the actual crisis.

Here is a summary of the "plan" courtesy of the Courier-Journal...notice that aside from putting new teachers into a "401(k)-style" defined contribution plan, the Republican proposal does pretty much nothing else except demand that more taxpayer dollars be diverted to service failing pension plans.

 

Here are highlights of the multi-point proposal:

• There is no increase in the full retirement age for current workers

• There will be no reductions in pension checks for retirees, and it protects health care benefits for them.

• Future non-hazardous employees and teachers will be required to enroll in 401(k)-style plans.

• Hazardous duty employees, such as police officers and firefighters, will continue in the same system they are in now.

• The plan would close a loophole to ensure payment of death benefits to families of hazardous employees.

• The plan would stop the defined benefits plans for all legislators, moving them into the same plan as other state employees under the jurisdiction of Kentucky Retirement Systems.

Of course, you can imagine our "surprise" when we learned that Kentucky teachers are apparently outraged that they might be "forced" to live with the cruel and unusual punishment of having to accept the same 401(k)-style retirement plans as pretty much every other private-sector employee in the country...the horror!

In an op-ed published in the Lexington Herald Leader this morning, a trio of public school administrators blasted the notion that they would be required to bear some responsibility for managing their own retirement plans rather than simply sticking their hand out for more taxpayer funded gifts when their public pension ponzis run low on funds.

However, we are seriously concerned that proposals in the current framework would increase the cost of the system, increase financial burdens on our local communities, decrease retirement security for our teachers and staff while moving absolutely all risk to them, and, most troubling, increase the unconscionable student resource inequities among classrooms across the state. It would decrease benefits for retirees, current staff and future hires, and increase revenue only from our employees themselves and from our local communities. We fear it would result in damage to public education on which families depend.

 

The proposed framework would create a defined-contribution plan with no amount of protected benefit whatsoever, which would be expensive in the near-term from a contribution standpoint and could leave employees with absolutely no savings or retirement income if another recession occurred as they neared retirement. This lack of financial security, which virtually no private or public sector employee faces, will decimate staff recruitment; students will suffer from increased class sizes and lack of specialized educators. It is difficult to imagine many of our finest young people choosing to enter a field of work that presented such risks.

 

An essential way to evaluate any reform is for each of us to ask ourselves this: Under the proposed plan, would we proudly encourage our own daughters and sons to earn college degrees and enter the education professions? Or, would we instead tell our own kids that serving their fellow Kentuckians by teaching children to read and write won’t provide a safe, secure future, and urge them to consider other options?

The problem, as we"ve noted numerous times before, is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can"t possibly offset liability growth and annual payouts...a fact that teachers seem all to happy to ignore.

Of course, if teachers are truly just concerned about providing the "best education possible" for public school students...how about a compromise?  We"re almost certain that taxpayers would be more willing to fund your extravagant pensions if you would, in return, be willing to be evaluated, and potentially fired, based on performance metrics assessing the relative improvement of your students and therefore your effectiveness as a teacher...deal?

Kentucky Republicans Cave On Pension Reform; Stick It To Taxpayers With "Kick The Can" Approach Instead

After months of planning and cogitating over how to address the failing public pension systems in their state, which are somewhere between $40 and $80 billion under water, Governor Matt Bevin and the leaders of the General Assembly’s Republican majorities released their plan earlier today and it appears to be nothing more than the same old "kick the can down the road" approach to "pension reform" that has perpetuated the pension ponzi in this country for decades while doing absolutely nothing to address the actual crisis.

Here is a summary of the "plan" courtesy of the Courier-Journal...notice that aside from putting new teachers into a "401(k)-style" defined contribution plan, the Republican proposal does pretty much nothing else except demand that more taxpayer dollars be diverted to service failing pension plans.

Here are highlights of the multi-point proposal:

 

• There is no increase in the full retirement age for current workers

 

• There will be no reductions in pension checks for retirees, and it protects health care benefits for them.

 

• Future non-hazardous employees and teachers will be required to enroll in 401(k)-style plans.

 

• Hazardous duty employees, such as police officers and firefighters, will continue in the same system they are in now.

 

• The plan would close a loophole to ensure payment of death benefits to families of hazardous employees.

 

• The plan would stop the defined benefits plans for all legislators, moving them into the same plan as other state employees under the jurisdiction of Kentucky Retirement Systems.

Here"s an overview of the 10-point pension plan @GovMattBevin and GOP leaders have developed to try to fix Kentucky"s pension crisis. pic.twitter.com/tcXar5yyd7

— Morgan Watkins (@morganwatkins26) October 18, 2017

Not surprisingly, Governor Bevin, who as a politician is worried not so much about the long-term solvency of his state"s pensions as he is about getting through the next election cycle, said the plan "will be a model for this nation" as it "keeps the promise" to public workers and delivers on his promise to "do what is legally and morally right."

In reality, of course, Bevin"s plan does nothing to "keep any promise" and simply delays the inevitable collapse of a ponzi scheme that will eventually buckle from a wave of retiring baby boomers who have been sold a lie for decades.

Just as quick reminder to Bevin, below is a recap of the changes that his own pension consultants told Kentucky"s Public Pension Oversight Board would be required to save the pensions in his state (courtesy of the Lexington Herald Leader)...suggestions that he seemingly dismissed in their entirety...

An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.

 

If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.

 

PFM also recommended increasing the retirement age to 65 for most workers.

 

The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.

 

For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.

 

The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

 

All of which just reminds us once again of how we once summed up public pensions in this country:

Defined Benefit Pension Plans are, in many cases, a ponzi scheme.  Current assets are used to pay current claims in full despite insufficient funding to pay future liabilities... classic Ponzi.  But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit.  Everyone from government officials to union bosses are incentivized to maintain the status quo...public employees get to sleep better at night thinking they have a "retirement plan," public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.  

Teachers Demand $3,200 From Each Kentucky Household To Fund Pension Ponzi For 2 Years

We have written frequently over the past couple of weeks about the disastrous public pension funds in Kentucky that are anywhere from $42 - $84 billion underfunded, depending on which discount rate you feel inclined to use. As we"ve argued before, these pensions, like the ones in Illinois and other states, are so hopelessly underfunded that they haven"t a prayer of ever again being made whole.

That said, logic and math have never before stopped pissed off teachers and/or clueless legislators from throwing good money after bad in an effort to "kick the can down the road" on their pension crises. As such, it should come as no surprise at all that the Lexington Herald Leader reported today that Kentucky"s 365,000 teachers and other public employees are now demanding that taxpayers contribute a staggering $5.4 billion to their insolvent ponzi schemes over the next two years alone. To put that number in perspective, $5.4 billion is roughly $3,200 for each household in the state of Kentucky and 25% of the state"s entire budget over a two-year period. 

Kentucky’s General Assembly will need to find an estimated $5.4 billion to fund the pension systems for state workers and school teachers in the next two-year state budget, officials told the Public Pension Oversight Board on Monday.

That amount would be a hefty funding increase and a painful squeeze for a state General Fund that — at about $20 billion over two years — also is expected to pay for education, prisons, social services and other state programs.

“We realize this challenge is in front of us. That’s obviously part of the need for us to address pension reform,” said state Sen. Joe Bowen, R-Owensboro, co-chairman of the oversight board.

“In the short-term, yeah, we’re obligated to find this money,” Bowen said. “And everybody is committed to do that. We have revealed this great challenge. We have embraced this great challenge, as opposed to previous members of the legislature, perhaps.”

In presentations on Monday, the pension oversight board was told that total employer contributions for KRS in Fiscal Years 2019 and 2020 would be an estimated $2.47 billion each year, up from $1.52 billion in the current fiscal year. Nearly $995 million of that would be owed by local governments. The remaining $1.48 billion is what the state would owe.

The Teachers’ Retirement System estimated that it would need a total of $1.22 billion in Fiscal Year 2019 and $1.22 billion in Fiscal Year 2020. That would include not only an additional $1 billion to pay down the system’s unfunded liabilities but also $139 million to continue paying the debt service on a pension bond that won’t be paid off until the year 2024.

Of course, the $5.4 billion will do absolutely nothing to avoid an inevitable failure of Kentucky"s pension system but what the hell...

As we"ve said before, the problem is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can"t possibly offset liability growth and annual payouts.  All the while, the funding for these ever increasing annual contributions comes out of budgets for things like public schools even though the incremental funding has no shot of fixing a system that is hopelessly "too big to bail."

So what can Kentucky do to solve their pension crisis?  Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question.  Unfortunately, we suspect that PFM"s conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than palatable for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their jobs...it"s a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America"s broken pension system.

Be that as it may, here is a recap of PFM"s suggestions to Kentucky"s Public Pension Oversight Board courtesy of the Lexington Herald Leader:

An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.

If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.

PFM also recommended increasing the retirement age to 65 for most workers.

The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.

For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.

The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

Meanwhile, PFM warned that the typical "kick the can down the road approach" would not work in Kentucky and that current retiree benefits would have to be cut.

“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”

“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”

Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren"t taken in the very near future. 

Kentucky Budget Director Admits Pension Underfunding Would Double If "Realistic Discount Rates" Used

We"ve frequently argued that public pensions in the U.S. are nothing more than elaborate ponzi schemes being propped up by unrealistic accounting assumptions that make them seem more healthy than they actually are.  As it turns out, the State Budget Director of Kentucky, John Chilton, is coming around to our way of thinking. 

In a letter sent out to the Kentucky Employees’ Retirement System last Friday, Chilton told Kentucky employees that if their pensions were subjected to the same rules governing single-employer private plans that their underfunded level would double and federal law would have already required "that all benefits be frozen and the plans terminated."  Per The State Journal:

“It is well known that all of the Commonwealth’s pension plans are in a crisis. Using the same investment rates of return that corporate plans are required to use – the Corporate Bond Index rate – the aggregate underfunding for all of Kentucky’s eight plans goes from $33 billion to $64 billion,” he wrote in the letter.

“Furthermore, if Kentucky plans were subject to federal standards for single-employer private plans, six of the plans would be designated as having severe funding shortfalls because their funded status is less than 60 percent. As such, federal law would require that all benefits be frozen and the plans terminated. This is true even using the old 2016 actuarial assumptions, rather than the more realistic discount rates and other assumptions required of private plans.

“The need for significant reform is evident to anyone looking at the health of the Commonwealth’s plans within that larger context.”

The letter said total employer contributions for Fiscal Year 2017, which ended June 30, were $857,311,370.  If there is no legislative action, that rises to an estimated $872,677,346 in FY 2018, the current fiscal year, and $1,483,863,927 in FY 2019, an increase of over $611 million, from this fiscal year.

As we pointed out last week, Kentucky"s public pensions face a daunting funding hole of $33-$84 billion, depending on your discount rate assumptions, according to a recent analysis conducted by PFM Group.

The problem is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can"t possibly offset liability growth and annual payouts.  All the while, the funding for these ever increasing annual contributions comes out of budgets for things like public schools even though the incremental funding has no shot of fixing a system that is hopelessly "too big to bail."

So what can Kentucky do to solve their pension crisis?  Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question.  Unfortunately, PFM"s conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than "perfectly acceptable" for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their jobs...it"s a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America"s broken pension system.

Be that as it may, here is a recap of PFM"s suggestions to Kentucky"s Public Pension Oversight Board courtesy of the Lexington Herald Leader:

An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.

If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.

PFM also recommended increasing the retirement age to 65 for most workers.

The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.

For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.

The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

Even if all of that is accomplished, State Budget Director John Chilton said Kentucky would still need to find an extra $1 billion a year just to keep its frozen pension systems afloat. Moreover, absent tax hikes the state will ultimately be forced to cut funding for K-12 schools by $510 million and slash spending at most other agencies by nearly 17% to make up the difference.

Meanwhile, PFM warned that the typical "kick the can down the road approach" would not work in Kentucky and that current retiree benefits would have to be cut.

“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”

“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”

Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren"t taken in the very near future. 

Nicolai Jilek, the legislative representative for the Kentucky Fraternal Order of Police, said expecting first responders to work until they are 60 is problematic given the physical requirements of the job.

“We’re very grateful that PFM is just offering recommendations … that they are not lawmakers because his plan would be horrible for first responders,” Jilek said.

Stephanie Winkler, president of the Kentucky Education Association, shared a similar sentiment.

“The PFM had some pretty drastic recommendations that we think are not what’s in the best interest of public school employees and public school students,” Winkler said.

Jim Carroll, president of Kentucky Government Retirees, said his group would likely sue if the legislature proceeds with PFM’s recommendation to roll back the cost of living adjustment that retirees received between 1996 and 2012.

“We think its very clear that the cost of living adjustments that were granted to us are ours as long as we are retirees in the system,” Carroll said.

As such, no matter the long-term consequences, we suspect the "kick the can down the road" approach to pension reform will continue to win right up until the plans actually run out of money...then we"ll all lose together.

Pension Consultant Offers Dire Outlook For Kentucky: Freeze Pension And Slash Benefits Or Else

Underfunded public pensions are undoubtedly the biggest threat facing America"s long-term economic stability.  As we"ve argued numerous times in the past, the size of the aggregate underfunding, $5-$8 trillion depending on your assumptions, is simply too large for even the overly generous American taxpayer to cover.

Of course, one of the biggest contributors to this inevitable crisis is the state of Kentucky which has a funding hole of $33-$84 billion, depending on your discount rate assumptions, according to an analysis recently conducted by PFM Group.

The problem is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can"t possibly offset liability growth and annual payouts.  All the while, the funding for these ever increasing annual contributions comes out of budgets for things like public schools even though the incremental funding has no shot of fixing a system that is hopelessly "too big to bail."

So what can Kentucky do to solve their pension crisis?  Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question.  Unfortunately, we suspect that PFM"s conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than palatable for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their jobs...it"s a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America"s broken pension system.

Be that as it may, here is a recap of PFM"s suggestions to Kentucky"s Public Pension Oversight Board courtesy of the Lexington Herald Leader:

An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.

If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.

PFM also recommended increasing the retirement age to 65 for most workers.

The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.

For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.

The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

Even if all of that is accomplished, State Budget Director John Chilton said Kentucky would still need to find an extra $1 billion a year just to keep its frozen pension systems afloat. Moreover, absent tax hikes the state will ultimately be forced to cut funding for K-12 schools by $510 million and slash spending at most other agencies by nearly 17% to make up the difference.

Meanwhile, PFM warned that the typical "kick the can down the road approach" would not work in Kentucky and that current retiree benefits would have to be cut.

“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”

“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”

Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren"t taken in the very near future. 

Nicolai Jilek, the legislative representative for the Kentucky Fraternal Order of Police, said expecting first responders to work until they are 60 is problematic given the physical requirements of the job.

“We’re very grateful that PFM is just offering recommendations … that they are not lawmakers because his plan would be horrible for first responders,” Jilek said.

Stephanie Winkler, president of the Kentucky Education Association, shared a similar sentiment.

“The PFM had some pretty drastic recommendations that we think are not what’s in the best interest of public school employees and public school students,” Winkler said.

Jim Carroll, president of Kentucky Government Retirees, said his group would likely sue if the legislature proceeds with PFM’s recommendation to roll back the cost of living adjustment that retirees received between 1996 and 2012.

“We think its very clear that the cost of living adjustments that were granted to us are ours as long as we are retirees in the system,” Carroll said.

As such, no matter the long-term consequences, the "kick the can down the road" approach to pension reform will continue to win right up until the plans actually run out of money...then we"ll all lose together.

Peak Savings: Wall Street Faces 20 Years Of Retirement Withdrawals As Boomers Hit 70 1/2

The United States is a demographic time bomb, plain and simple.  Over the next 30 years, the U.S. economy will face an unrelenting demographic transition as ~75 million baby boomers exit the highest wage earning years of their life and start to draw down what little retirement savings they"ve managed to tuck away while wreaking havoc to the public "safety net" ponzi schemes, like Social Security, that will almost certainly be insolvent in a decade.

Per the U.S. Census Bureau, over the 30 years, the number of people in the U.S. over the age of 65 is expected to double while those 85 and up will triple.  Needless to day, the overall population growth of the United States is a fraction of that which means that millennials are about to get crushed by their parents....so it"s probably a good thing they already live in mom and dad"s basement.

In aggregate, per the Wall Street Journal, Boomers have saved $10 trillion in various tax-deferred saving accounts.  While that sounds like an impressive figure, with 75 million Boomers, it equates to an average of $133,000 per person which, needless to say, is insufficient to fund ~20 years of retirement. 

But while the Boomers, and by extension taxpayers, are facing a harsh future, Wall Street has made a killing in fees off of managing the ever growing balance of retirement accounts as Baby Boomers have come of age.  But that all looks set to change as America"s aging population is forced by IRS regulations to take retirement withdrawals once they hit 70 1/2 years of age.

As illustrated by the chart below, over the past 2 decades Americans have consistently contributed more than they"ve withdrawn from tax deferred accounts, excluding recessionary periods.  But that all changed in 2013 and 2014 as the first wave of Boomers hit the magical age of 70.5 with a total of $25 billion of net withdrawals in 2014 alone.

Contributions to tax-deferred retirement plans outnumbered withdrawals through much of the 1990s and 2000s. That flow began to reverse as boomers entered their retirement years earlier this decade.

Investors pulled a net $9 billion from workplace retirement-savings plans in 2013, according to the Labor Department. In 2014 the withdrawals jumped to net $24.9 billion. Full-year information for 2015 from the Labor Department isn’t yet available, but large mutual-fund companies that manage the bulk of U.S. retirement assets say outflows continue to rise. Fidelity Investments expects 100,000 customers to take their first required distributions in 2017, up from 91,000 in 2016.

Still, distributions are expected to grow exponentially over the next two decades because of a 1986 change to federal law designed to prevent the loss of tax revenue. Congress said savers who turn 70 ½ have to start taking withdrawals from tax-deferred savings plans or face a penalty. Specifically, retirees who turn 70 ½ have until April of the following calendar year to pull roughly 3.65% from their IRA and 401(k) funds, subject to slight differences in the way the funds are treated by the Internal Revenue Service.

Moreover, mandatory withdrawals, as set by the IRS, grow exponentially as America"s Boomers get older.  While mandatory annual withdrawals are only ~3.5% of assets at age 70.5, that number grows to 8% by age 90.  And even though it may not sound like a lot, 3.5% of $10 trillion is $350 billion worth of assets that would have otherwise been paying Wall Street a handsome annual management fee.

U.S. law requires anyone age 70 ½ or older to begin annual withdrawals from their tax-sheltered retirement accounts and pay
taxes on those distributions. The oldest of the nation’s 75 million baby boomers cross that threshold for the first time this month, according to a U.S. Census Bureau estimate of when that demographic group began.

The obligatory outflows from 401(k)s and IRAs are expected to ripple through the U.S. economy, the stock market and a money-management industry that relies heavily on fees from boomers’ tax-sheltered savings plans and assets.

Boomers hold roughly $10 trillion in tax-deferred savings accounts, according to an estimate by Edward Shane, a managing director at Bank of New York Mellon Corp. Over the next two decades, the number of people age 70 or older is expected to nearly double to 60 million—roughly the population of Italy.

Firms that manage 401(k) plans are trying to persuade clients to reinvest their withdrawals in other products rather than spending or donating the cash to charity. It’s another pain point for many traditional money
managers already struggling to keep some clients from shifting into lower-cost index-tracking mutual funds.

But don"t worry Wall Street, the average millennial has a massive $1,000 nest egg saved up to help you fill those annual $350 billion gaps.