$1.2 Trillion Asset Manager: Forget Volatility, The Real Financial Timebomb Is Public Pensions

This report was originally published by Tyler Durden at Zero Hedge

As we have reported over and over and over (and over, and over), public pensions are in deep, deep trouble.

In addition critical funding shortfalls (U.S. public pensions had just 71.8% of assets required to meet obligations as of June 2016), many of the country’s largest pensions have completely unrealistic target rates-of-return of 7% on average.

(Millman 2017 Public Pension Funding Study)

And while interest rates and therefore the cost of leverage has been at historic lows, and markets at historic highs (until they underwent a brief Vol-fib cardiac arrest last week), the question is what happens when the music stops, liquidity dries up, and economic contraction besets (or catch up to) the markets?

David Hunt, CEO of $1.2 trillion asset manager PGIM, is asking this exact question.

“If you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list,” Hunt said in a Friday interview with Bloomberg, discussing what municipalities and states will do when local tax revenues decline and unemployment worsens. “So we’re worried about those pension obligations.”

PGIM, owned by New Jersey-based Prudential Financial, advises 147 of the 300 largest pension funds around the world. Hunt joined Prudential in 2011 after leaving McKinsey & Co., where he doubled assets under management, renamed the business PGIM, and bought a Deutsche Bank AG unit to expand in India.

In other words, he knows the business like the back of his hand.

Hunt said that corporate retirement funds typically outperform their public counterparts. To that end, one of the most difficult aspects of managing money for public plans, says Hunt, is the fact that lawmakers are promising unrealistic goals to retirees. As such, he has advised public-pension clients to stop seeking the highest returns, and “start doing what the corporate folks have long been doing, which is to find ways to minimize the deficit and to take risk gradually off the table.”

Of course, that will never happen, and instead pensions will soon be begging Credit Suisse to recreate the XIV just so they can go long.

The PGIM CEO also sees a shift in equities markets as fewer firms pursue IPO funding – instead opting for private equity. as Bloomberg notes, the number of publicly traded U.S. companies shrank from over 8,000 in 1996 to around 4,300 in 2016, according to Ernst & Young.

“More than any other period in our history we’re going to have companies that are owned by private equity rather than the public equity markets,” Hunt said. “The dynamism and growth of the economy is now more and more being captured privately and by institutions rather than actually available for you to own in your 401(k) account or for other public markets.”

One could almost say that as central banks nationalize the markets, leading to idiotic valuations, it is a handful of private capital holders who end up with all the gains. As for everyone else… well, you have all those “fully-funded”, non-timebomby pensions to look forward to.

Drowning In The Money River

This report was originally published by Adam Taggart at PeakProsperity.com

It’s a big club and you ain’t in it.

~ George Carlin

If you suspect society is unfair, that there’s a different set of rules the rich live by, you’re right.

I’ve had ample chance to witness first-hand evidence of this in my time working on Wall Street and in Silicon Valley. Simply put: our highly financialized economy is gamed to enrich those who run it, at the expense of everybody else.

The Money River

A recent experience really drove this home for me.

Having received my MBA from Stanford in the late 90s, I remain on several alumni discussion groups. Recently, a former classmate of mine, who now runs her own asset management firm, circulated her thoughts on how today’s graduating students could best access an on-ramp to the ‘money river’.

What’s the ‘money river’? Good question.

The money river is the huge tsunami of investment capital sloshing around the globe, birthed by the historically-unprecedented money printing conducted by the world’s central banks over the past decade. Since 2008, they’ve more than tripled their collective balance sheet:

(Source)

The $13+ trillion in new thin-air money issued to achieve this is truly staggering. It’s so large that the human brain really can’t wrap around it. (For those who haven’t seen it, watch our brief video How Much Is A Trillion? to better understand this.)

But suffice it to say, all that money has to go somewhere. And it first goes into the pockets of those with closest access to it, and of those who direct where it flows.

In the context of MBA graduates working in finance, accessing the ‘money river’ often follows this recipe:

• Step 1: Get hired by a buy-side fund (asset management firm, hedge fund, etc)


• Step 2: Make friends at other funds by investing part of your portfolio in their offerings


• Step 3: Leave to create your own fund, which all your new buddies will invest part of their firms’ portfolios in


• Step 4: Collect a fat annual salary of 2% of assets under management (regardless of how your fund performs), plus 20% of any gains

Let’s put a little math behind this, with real-world numbers based on another classmate of mine who followed this recipe. After graduating, he went to work for a prestigious private equity firm, spending nearly a decade there as a fund manager. He then left to start his own fund.

Since he had invested in scores of ventures and funds while working for the private equity firm, he had amassed plenty of industry insiders who knew they had to reciprocate when it came time for him to hang out his own shingle, because “that’s how the game is played”. You help me when I need it, and I’ll do the same for you.

Only a few weeks after announcing the formation of his new fund, he had raised $100 million for it. At his 2% management fee, that gave him an annual salary of $2 million no matter how the fund performed. And with the standard carried interest percentage, he had substantial additional upside of 20% of any profits the fund may take in the future.

Since forming this fund nearly ten years ago, the financial markets have been on a historic bull run, with hardly any corrections along the way. This is primarily due to the trillions in new money provided by the world’s central banks mentioned above. So, it’s little surprise that my former classmate’s fund now stands at over $1.1 billion in assets under management.

That’s now a $20 million annual management fee. Plus 20% on (conservatively estimating) hundreds of millions of gains made along the way.

Not bad work if you can get it.

No Fund For You!

But that’s a big part of my point here. The 99% don’t have a key past the velvet rope to access the money river.

Look, I don’t begrudge this guy his success. Well, maybe I do; but it’s not personal — I know him well enough to say that for certain he’s extremely smart, bold and hardworking. But he’s benefiting from being in the Big Club that George Carlin railed about. The rest of us ain’t in that club, and won’t ever be. But our futures are being determined — or more accurately put, undermined — by it.

All that liquidity being provided by the central banks? To keep that money flowing it needs to be cheap to those who want to borrow it, so the banks have concurrently driven interest rates down to the lowest levels in recorded history (going back over 5,000 years). Some extra-aggressive central banks have even pursed negative interest rates.

What this has resulted in is a tremendous transfer of wealth to the already-rich at the expense of everybody else.

Those with the means and access to borrow have been able to get essentially free money to do so; while savers and those dependent on fixed income have been starved of any yield whatsoever.

The wave of global stimulus plus the low cost of borrowing has driven capital into nearly every asset market, rocketing prices higher. So those who have held those assets have become substantially richer, while those who have not have become increasingly priced out.

Along with asset prices, prices of nearly everything else have risen, too, dramatically increasing the cost of living:

(Source)

But, as costs have risen, wages have not. Especially when measured in real (i.e. inflation-adjusted) terms.

Real wages are now 7% lower than they were in 1973  — and that’s calculated using the official government-reported inflation rate, which we all know vastly understates the actual inflation rate. (Read our report on The Burrito Index to understand why the true price inflation households suffer is more like 5x greater than the official reported rate).

So the rich see their assets shoot the moon, and they get access to the ‘money river’, to boot. While the rest of us see stagnant real wages and a skyrocketing cost of living.

Is it any surprise that a tremendous and still-growing wealth gap between the 1% and everyone else has resulted?

(Source)

(Source)

The Future Looks Dim For Those Sleepwalking Into It

As we’ve written about at length in our recent report The Great Retirement Con, the average American worker is woefully unprepared to afford his/her retirement:

(Source)

And for those counting on a pension, odds aren’t bad it may get reduced/eliminated during a future economic crisis.

Think that could never happen? Well, Governor Jerry Brown just announced this on Wednesday:

California’s Brown Raises Prospect of Pension Cuts in Downturn (Bloomberg)

California Governor Jerry Brown said legal rulings may clear the way for making cuts to public pension benefits, which would go against long-standing assumptions and potentially provide financial relief to the state and its local governments.

Brown said he has a “hunch” the courts would “modify” the so-called California rule, which holds that benefits promised to public employees can’t be rolled back.

“There is more flexibility than there is currently assumed by those who discuss the California rule,” Brown said during a briefing on the budget in Sacramento. He said that in the next recession, the governor “will have the option of considering pension cutbacks for the first time.”

That would be a major shift in California, where municipal officials have long believed they couldn’t adjust the benefits even as they struggle to cover the cost. They have raised taxes and dipped into reserves to meet rising contributions. The California Public Employees’ Retirement System, the nation’s largest public pension, has about 68 percent of assets needed to cover its liabilities.

Across the country, states and local governments have about $1.7 trillion less than what they need to cover retirement benefits — the result of investment losses, the failure by governments to make adequate contributions and perks granted in boom times.

“In the next downturn, when things look pretty dire, that would be one of the items on the chopping block,” Brown said.

And this is in California, one of the most pro-worker/pro-entitlement states in the Union. If California is already sending out warnings like this, you can be sure that the other 49 states are thinking of making (at least) equally-harsh cuts when the next recession hits.

Potential cuts to promised pensions is just one of the many ways in which those running the system will act to preserve their share of the pie when crisis next arises. Those concerned about what other measures might be taken would do well to read our report Upon The Next Crisis, The Rules Will Suddenly Change.

And for those who prefer their cynicism blended with hard truths and humor, watch this short video of George Carlin’s epic rant against the elite’s Big Club. I quoted Carlin at the beginning of this article for a reason, he really nailed the central point I’m trying to make (Warning: the language used gets quite graphic):

Fighting Back

So, what can the rest of us in the 99% do about it?

Is this a lost cause? Should we just accept our fate and sink to the bottom of the money river, smothered by its high prices and low yields?

No.

The good news here is that there’s a clear set of strategies for keeping yourself afloat while the system continues to pursue these pernicious and deeply unfair policies. They take focus, effort and discipline — but anyone implementing them will have good chance to stay ahead of the rising cost curve, and have a real shot at financial prosperity.

In Part 2: Winning Against The Big Club, we examine a number of strategies for offsetting the soaring costs of everything from housing to healthcare — with particular focus on the investments and actions you can take today, inside and outside of the markets, to preserve the purchasing power of your wealth from the nefarious “stealth tax” placed on your money by the kind of inflation discussed above.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

Almost A Third Of Americans Are Working Beyond Age 65

There is a huge disparity in employment rates among over 65s across different countries...

You will find more statistics at Statista

As Statista"s Niall McCarthy notes, a recent OECD report found that the highest rates of people working beyond 65 are in Asia with Indonesia particularly notable as having a 50.6 percent employment among those in the 65-69 age group. That figure is high elsewhere in Asia, standing at 45 percent in South Korea and 42.8 percent in Japan.

In contrast to Europe where there were widespread protests when the retirement age was raised even slightly, much of Asia has actually been supportive of increases in the mandatory retirement age. Reasons for support include everything from a desire to maintaing a fit and active life to more obvious concerns about finances.

New Zealand has no compulsory retirement age and it is another country with a high employment rate among older people with 42.6 percent of those aged 65 to 69 still working. The rate is far less in Australia at 25.9 percent while it"s 31 percent in the United States.

In Europe where all those protests happened, the rate is lower still. In the United Kingdom, the employment rate for 65-69 year olds stands at 21 percent while in France and Spain, it is only 6.3 and 5.3 percent respectively.

Here"s How Much Retirees Are Spending To Support Their Adult Kids

At one point in time in America, living at home with mom and dad after crossing out of your teenage years and into your 20s was embarrassing and something that was generally avoided at all costs.  And while hard times come and go, 20-somethings who were forced back into their parents" care worked their tails off until they could save up enough money to once again regain their freedom.

But, these days millennials seem to be embracing the free room and board provided by their parents.  According to a new study from the Census Bureau, roughly one-third of all millennials live at home with their parents and one-fourth of them can"t be bothered with enrolling in school or finding a job.

Of course, while living at home can help millennials cut down on costs, according to a new study from Nerd Wallet, it can also have a devastating impact on the retirement savings potential of their overly accommodating parental units...to the tune of a quarter million dollars.  Here are some of the key takeaways from Nerd Wallet"s survey:

• Parents could miss out on almost a quarter-million dollars in retirement savings by paying their adult kids’ expenses: According to NerdWallet analysis, a parent’s retirement savings could be $227,000 higher if they chose to save the money that would otherwise go to their child’s living expenses and tuition.

 

• Parents paying college costs could be missing out on almost $80,000 in retirement savings: More than a quarter of parents of children 18 and older (28%) are paying or have paid for their adult children’s tuition or student loans. The average parent takes out $21,000 in loans for their child’s college education, but the hit to retirement savings is almost quadruple that amount.

 

• Most adult children are living with their parents for more than a year after they turn 18: Almost 3 in 5 parents with kids 18 and older (59%) have had adult children living with them for more than a year; over 1 in 5 (23%) have had adult children living with them for more than five years. On average, these parents say the longest period of time they have had their adult children living with them is 4.5 years.

 

• Parents expect their kids to help them financially during retirement: Almost a quarter of parents saving for retirement (23%) expect their children to provide financial support for them after they retire. Millennial parents are most likely to say this (44% vs. 25% of Generation X parents and 5% of baby boomer parents), despite saving more than parents from other generations.

So where is the money going..

Many parents of children 18 and older are paying or have paid for their adult children’s basic living costs, including groceries (56%), health insurance (40%) and rent or housing outside the family home (21%). Some parents are also covering or have covered their adult child’s cell phone bill (39%) and car insurance (34%). But it’s important for parents — especially those who are behind in saving for retirement — to note that those same dollars could significantly grow their nest eggs over time.

 

In addition to these living costs, some parents of children 18 and older are paying or have paid for other expenses, such as clothing (32%), entertainment (20%), an allowance (10%) or a car loan (10%).

So, how long can your adult children be expected to interrupt your golden years? According to Nerd Wallet, 1 in 5 households surveyed said their adult children lived with them for more than half a decade.

Frankly, we continue to be shocked that all of those kids out there with $250,000 Art and Anthropology degrees are finding it difficult to land their dream jobs...

The Great Retirement Con

This report was originally published by Adam Taggart at PeakProsperity

The Origins Of The Retirement Plan

Back during the Revolutionary War, the Continental Congress promised a monthly lifetime income to soldiers who fought and survived the conflict. This guaranteed income stream, called a “pension”, was again offered to soldiers in the Civil War and every American war since.

Since then, similar pension promises funded from public coffers expanded to cover retirees from other branches of government. States and cities followed suit — extending pensions to all sorts of municipal workers ranging from policemen to politicians, teachers to trash collectors.

A pension is what’s referred to as a defined benefit plan. The payout promised a worker upon retirement is guaranteed up front according to a formula, typically dependent on salary size and years of employment.

Understandably, workers appreciated the security and dependability offered by pensions. So, as a means to attract skilled talent, the private sector started offering them, too.

The first corporate pension was offered by the American Express Company in 1875. By the 1960s, half of all employees in the private sector were covered by a pension plan.

Off-loading Of Retirement Risk By Corporations

Once pensions had become commonplace, they were much less effective as an incentive to lure top talent. They started to feel like burdensome cost centers to companies.

As America’s corporations grew and their veteran employees started hitting retirement age, the amount of funding required to meet current and future pension funding obligations became huge. And it kept growing. Remember, the Baby Boomer generation, the largest ever by far in US history, was just entering the workforce by the 1960s.

Companies were eager to get this expanding liability off of their backs. And the more poorly-capitalized firms started defaulting on their pensions, stiffing those who had loyally worked for them.

So, it’s little surprise that the 1970s and ’80s saw the introduction of personal retirement savings plans. The Individual Retirement Arrangement (IRA) was formed by the Employee Retirement Income Security Act (ERISA) in 1974. And the first 401k plan was created in 1980.

These savings vehicles are defined contribution plans. The future payout of the plan is variable (i.e., unknown today), and will be largely a function of how much of their income the worker directs into the fund over their career, as well as the market return on the fund’s investments.

Touted as a revolutionary improvement for the worker, these plans promised to give the individual power over his/her own financial destiny. No longer would it be dictated by their employer.

Your company doesn’t offer a pension? No worries: open an IRA and create your own personal pension fund.

Afraid your employer might mismanage your pension fund? A 401k removes that risk. You decide how your retirement money is invested.

Want to retire sooner? Just increase the percent of your annual income contributions.

All this sounded pretty good to workers. But it sounded GREAT to their employers.

Why? Because it transferred the burden of retirement funding away from the company and onto its employees. It allowed for the removal of a massive and fast-growing liability off of the corporate balance sheet, and materially improved the outlook for future earnings and cash flow.

As you would expect given this, corporate America moved swiftly over the next several decades to cap pension participation and transition to defined contribution plans.

The table below shows how vigorously pensions (green) have disappeared since the introduction of IRAs and 401ks (red):

(Source)

So, to recap: 40 years ago, a grand experiment was embarked upon. One that promised US workers: Using these new defined contribution vehicles, you’ll be better off when you reach retirement age.

Which raises a simple but very important question: How have things worked out?

The Ugly Aftermath

America The Broke

Well, things haven’t worked out too well.

Three decades later, what we’re realizing is that this shift from dedicated-contribution pension plans to voluntary private savings was a grand experiment with no assurances. Corporations definitely benefited, as they could redeploy capital to expansion or bottom line profits. But employees? The data certainly seems to show that the experiment did not take human nature into account enough – specifically, the fact that just because people have the option to save money for later use doesn’t mean that they actually will.

First off, not every American worker (by far) is offered a 401k or similar retirement plan through work. But of those that are, 21% choose not to participate (source).

As a result, 1 in 4 of those aged 45-64 and 22% of those 65+ have $0 in retirement savings (source). Forty-nine percent of American adults of all ages aren’t saving anything for retirement.

In 2016, the Economic Policy Institute published an excellent chartbook titled The State Of American Retirement (for those inclined to review the full set of charts on their website, it’s well worth the time). The EPI’s main conclusion from their analysis is that the switchover of the US workforce from defined-benefit pension plans to self-directed retirement savings vehicles (e..g, 401Ks and IRAs) has resulted in a sizeable drop in retirement preparedness. Retirement wealth has not grown fast enough to keep pace with our aging population.

The stats illustrated by the EPI’s charts are frightening on a mean, or average, level. For instance, for all workers 32-61, the average amount saved for retirement is less than $100,000. That’s not much to live on in the last decades of your twilight years. And that average savings is actually lower than it was back in 2007, showing that households have still yet to fully recover the wealth lost during the Great Recession.

But mean numbers are skewed by the outliers. In this case, the multi-$million households are bringing up the average pretty dramatically, making things look better than they really are. It’s when we look at the median figures that things get truly scary:

Nearly half of families have no retirement account savings at all. That makes median (50th percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013. For most age groups, median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium. (Source)

The 50th percentile household aged 56-61 has only $17,000 to retire on. That’s dangerously close to the Federal poverty level income for a family of two for just a single year.

Most planners advise saving enough before retirement to maintain annual living expenses at about 70-80% of what they were during one’s income-earning years. Medicare out-of-pocket costs alone are expected to be between $240,000 and $430,000 over retirement for a 65-year-old couple retiring today.

The gap between retirement savings and living costs in one’s later years is pretty staggering:

• Nearly 83% of retired households have less saved than Medicare costs alone will consume.


• One-third of retired households are entirely dependent on Social Security. On average, that’s only $1,230 per month – a hard income to live on. (source)


• 34 percent of older Americans depend on credit cards to pay for basic living expenses such as mortgage payments, groceries, and utilities. (source)

As for Medicare, the out-of-pocket costs could easily soar over retirement. The Wall Street Journal reports that the current estimate of Medicare’s unfunded liability now tops $42 Trillion. Such a mind-boggling gap makes it highly likely that current retirees will not receive all of the entitlements they are being promised.

And the denial being shown by baby boomers entering retirement is frightening. Many simply plan to work longer before retiring, with a growing percentage saying they plan to work “forever”.

But the data shows that declining health gives older Americans no choice but to leave the work force eventually, whether they want to or not. Years of surveys by the Employment Benefit Research Institute show that fully half of current retirees had to leave the work force sooner than desired due to health problems, disability, or layoffs.

Add to this the nefarious impact of the Federal Reserve’s prolonged 0% interest rate policy, which has made it extremely hard for retirees with fixed-income investments to generate a meaningful income from them.

The number of Americans aged 65 years and older is projected to more than double in the next 40 years:

Will the remaining body of active workers be able to support this tsunami of underfunded seniors? Don’t bet on it.

Especially since their retirement savings prospects are even more dim. With long-stagnant real wages and punishing price inflation in the cost of living, Generation X and Millennials are hard-pressed to put money away for their twilight years:

(Source)

Public Pensions: Broken Promises

And for those “lucky” folks expecting to enjoy a public pension, there’s a lot of uncertainty as to whether they’re going to receive all they’ve been promised.

Due to underfunded contributions, years of portfolio under-performance due to the Federal Reserve’s 0% interest rate policy, poor fund management, and other reasons, many of the federal and state pensions are woefully under-captialized. The below chart from former Dallas Fed advisor Danielle DiMartino-Booth shows how the total sum of unfunded public pension obligations exploded from $292 billion in 2007 to $1.9 trillion by the end of 2016:

(Source)

And the daily headlines of failing state and local pension funds (Illinois, Kentucky, New Jersey, Dallas, Providence — to name but a few) show that the problem is metastasizing across the nation at an accelerating rate.

Affording Your Future

The bottom line when it comes to retirement is that you’re on your own. The vehicles and the promises you’ve been given are proving woefully insufficient to fund the “retirement” dream you’ve been sold your whole life.

That’s the bad news.

But the good news is that the dream is still attainable. There are strategies and behaviors that, if adopted now, will make it much more likely for you to be able to afford to retire — and in a way you can enjoy.

In Part 2: Success Strategies For Retirement, we detail out these best practices for a solvent retirement, including providing 14 specific action steps you can start taking right now in your life that will materially improve your odds of enjoying your later years with grace.

For far too many Americans, “retirement” will remain a perpetual myth. Don’t let that happen to you.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

Yale"s Endowment CIO Has Some Really Bad News For Public Pensions...

Public pensions all around the country like to play a clever little game that allows them to drastically understate the current value of their future liabilities and therefore pretend that their ponzi schemes are something other than insolvent frauds.  Of course, we"re talking about the artificially high discount rates that pension boards consistently use to understate their net underfunding levels...a topic that we"ve written about frequently over the years.

Alas, at least in the opinion of Yale"s Chief Investment Officer David Swensen, those 7.5% annual returns that pensions love to rely on, even if they"ve never managed to actually achieve them, are going to be increasingly difficult to hit over the coming years.  As Swensen told Bloomberg, despite achieving a 13.5% annual return over the past 32 years, he is now preparing university officials for much lower returns averaging around 5% for the foreseeable future.

The investment chief, who was interviewed by former U.S. Treasury Secretary Robert Rubin, also said he’s expecting lower returns for the university’s endowment, which he’s run for 32 years with a 13.5 percent average annual rate of return.

 

For the past 12 to 18 months, Swensen said he has been warning university officials to expect much lower returns in the future, as little as 5 percent annually, which would be down from previous assumptions of 8.25 percent.

 

“It’s not a very popular change,” he said. “We’re victims of our own success.”

Meanwhile, as we pointed out a couple of months ago (see: Pension Ponzi Exposed: Minnesota Underfunding Triples After Tweaking This One Small Assumption...), the state of Minnesota recently provided a beautiful illustration of exactly what happens when public pensions decide to ditch their inflated discount rates for more realistic assumptions...their net underfunding tripled to $50 billion...here"s more

from Bloomberg:

Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules.

 

The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent

governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53 percent of what it needed to cover promised benefits, down from 80 percent a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg.

 

The Minnesota’s teachers’ pension fund, which had $19.4 billion in assets as of June 30, 2016, is expected to go broke in 2052. As a result of the latest rules the pension has started using a rate of 4.7 percent to discount its liabilities, down from the 8 percent used previously. As a result, its liabilities increased by $16.7 billion.

Unfortunately, lower returns was only part of the bad news that Swensen had for U.S. investors as he described the current disconnect between "fundamental risks that we see all around the globe with the lack of volatility in our securities markets" as "profoundly troubling."

David Swensen, Yale University’s longtime chief investment officer, said the lack of market volatility in the current geopolitical environment is a major concern and warned that another crash is possible.

 

“When you compare the fundamental risks that we see all around the globe with the lack of volatility in our securities markets, it’s profoundly troubling,” Swensen, 63, said Tuesday during remarks at the Council on Foreign Relations in New York. That “makes me wonder if we’re not setting ourselves up for an ’87, or a ’98 or a 2008-2009,” he said, referring to previous market crises.

 

“The defining moments for portfolio management” came in those years, “and if you ignore that you’re not going to be able to manage your portfolio,” Swensen said.

 

Asked why Yale’s uncorrelated assets are higher now than in 2008, he said, "I’m not worried about the economy so much, what I’m concerned about is valuation."

Of course, we"re sure these warnings will provoke pension managers all around the country to promptly reassess their optimistic return assumptions and adjust future pension benefits accordingly to preserve the solvency of their funds for future generations of pensioners...

Will Americans Die Young Enough To Save Pension Plans?

Authored by Doug French via The Mises Institute,

“Pension fund problems worsen in 43 states” says the Bloomberg headline.

Laurie Meisler writes,

New Jersey, Kentucky and Illinois continue to lose ground and now have only about one third of the money they need to pay retirement benefits. And three states had double-digit declines in their pension funding ratios in the past year: Colorado, Oregon and Minnesota - though some of this can be attributed to actuarial changes in the way pension liabilities are calculated.

Nevada PERs is thinking about making a change, from assuming 8% investment returns to 7.5%. The higher the assumed rate, the less future beneficiaries have to contribute.  And, ultimately, Sean Whaley writes for the LVRJ,

The assumptions are used to ensure the solvency of the plan over the long term for the approximately 105,000 active members and 54,000 retired and disabled members. Because the public retirement plan is a defined benefit plan where retirees get a fixed monthly pension, taxpayers are ultimately responsible for its fiscal health.

Nevada PERS Executive Officer Tina Leiss said NvPERs funding ratio of 74.1 could drop if the returns assumption is lowered.

The good news (or maybe it"s bad news) is “Americans are retiring later, dying sooner, and sicker in-between” says Bloomberg. Ben Steverman writes,

Data released last week, reports Bloomberg,  suggest Americans’ health is declining and millions of middle-age workers face the prospect of shorter, and less active, retirements than their parents enjoyed.

The mortality rate increased 1.2% from 2014 to 2015, the first time its increased since 2005 and the first time it"s jumped over 1% since 1980.

Full social security benefits don’t kick in until a person is 66+ now, so,

“Almost one in three Americans age 65 to 69 is still working, along with almost one in five in their early 70s.”

That sounds okay, except, University of Michigan economists HwaJung Choi and Robert Schoeni have studied middle-aged folks and found,

“the number of middle-age Americans with ADL (activity of daily living) limitations has jumped: 12.5 percent of Americans at the current retirement age of 66 had an ADL limitation in their late 50s, up from 8.8 percent for people with a retirement age of 65.”

Then you might say, well, I might not be able to get around, but at least my mind is sharp. Except, “Cognitive skills have also declined over time. For those with a retirement age of 66, 11 percent already had some kind of dementia or other cognitive decline at age 58 to 60, according to the study. That’s up from 9.5 percent of Americans just a few years older, with a retirement age between 65 and 66.”

Maybe that’s why people are either killing themselves quickly - suicide - or slowly with alcohol, drugs, or overeating.  

This is all good news for pension plans...

As life expectancy drops - The Society of Actuaries says a 65-year-old man can expect to live to 85.6 years, and a woman can expect to make it to 87.6.

So - the group calculates a typical pension plan’s obligations could fall by 0.7 percent to 1 percent.

That"s a start but it won’t do much good, in New Jersey, Kentucky and Illinois.

*  *  *

Simply put, we"re gonna need a bigger die-off - or perhaps a few more years of unhealthy living will start to really help.

The New American Dream: Work Longer, Live Sicker, Die Sooner

With stagnant wages, rising cost of living (see shelter inflation), and a lack of savings, Americans are retiring later than ever before (if at all). But in a double-whammy for seniors, whose health is declining, their lifespans are shrinking offering them little if any time to enjoy the end of the American Dream walking hand in hand into the sunset on a faraway beach...

As Bloomberg reports, data released last week suggest Americans’ health is declining and millions of middle-age workers face the prospect of shorter, and less active, retirements than their parents enjoyed.

Here are the stats:

The U.S. age-adjusted mortality rate - a measure of the number of deaths per year - rose 1.2 percent from 2014 to 2015, according to the Society of Actuaries.

That’s the first year-over-year increase since 2005, and only the second rise greater than 1 percent since 1980.

At the same time that Americans’ life expectancy is stalling, public policy and career tracks mean millions of U.S. workers are waiting longer to call it quits.

Almost one in three Americans age 65 to 69 is still working, along with almost one in five in their early 70s.

And finally, Americans in their late 50s already have more serious health problems than people at the same ages did 10 to 15 years ago, according to the journal Health Affairs.

Bloomberg"s Ben Steverman points out that researchers have offered many theories for why Americans’ health is getting worse. Princeton University economists Anne Case and Angus Deaton, a Nobel Prize winner, have argued that an epidemic of suicide, drug overdoses and alcohol abuse have caused a spike in death rates among middle-age whites.

Higher rates of obesity may also be taking their toll. And Americans may have already seen most of the benefits from previous positive developments that cut the death rate, such as a decline in smoking and medical advances like statins that fight cardiovascular disease.

So there you have it - The New American Dream: Work Longer, Live Sicker, Die Sooner...

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?

1 Million Ohio Public Employees Face Pension Cuts As Another Ponzi Teeters On The Brink

We"ve written frequently of late about the pension crisis in Kentucky where pensioners are facing potentially catastrophic benefit cuts as their politicians finally admit that they"ve been sold a fantasy for decades (see: Pension Consultant Offers Dire Outlook For Kentucky: Freeze Pension And Slash Benefits Or Else).

Unfortunately, Kentucky is not unique as there is a never-ending stream of similar pension failures popping up daily all around the country.  The latest such example comes to us from Ohio as the Dayton Daily News notes that the Ohio Public Employees Retirement System (OPERS) has been forced to consider COLA cuts for its 1 million pensioners in order to keep the fund solvent.

Ohio’s biggest public pension system is considering cutting the cost of living allowances for its 1-million members as a way to shore up the long-term finances of the fund.

Ohio Public Employees Retirement System trustees on Wednesday discussed options that could affect all current and future retirees, including tying the cost of living allowance to inflation and capping it and delaying the onset of the COLA for new retirees.

No decision has been made and trustees will discuss the options again in October. So far, some 72,000 members responded to an OPERS survey about possible changes. OPERS spokesman Todd Hutchins said 70 percent of retirees responding to the survey report that they prefer that the COLA be capped, rather than frozen.

So how bad is OPERS?  Per the latest valuation, Ohio taxpayers are on the hook for a roughly $20 billion underfunding.  Ironically, the fund ended 2016 with the highest underfunding in it"s history, after being nearly fully funded in 2007, despite a 275% surge in the S&P off the lows in 2009.  Perhaps someone can explain to us how these pensions stand a chance of ever again being fully funded if they can"t even manage to improve their balance sheet during one of the biggest equity bubbles in history?

Be that as it may, like all pensions the OPERS underfunding is only as good as the garbage assumptions used to calculate it.  As the following table shows, a mere 1% reduction in OPERS" discount rate would result in a $12 billion increase in the fund"s net liability.

Ironically, even OPERS" own financial report pegs its "Weighted Average Long-Term Expected Real Rate of Return" at just 5.66%.

Not surprisingly, OPERS is just one of many Ohio public pensions currently facing cuts.

OPERS is the latest of the five public pensions systems in Ohio to consider benefit cuts.

The State Teachers Retirement System of Ohio in April voted to indefinitely suspend the COLA for retired teachers. Trustees said they weren’t certain that the cut would be enough to shore up the finances of the $72-billion fund.

Ohio Police & Fire Pension Fund is expected to hire a consultant to help restructure its health care benefits. OP&F announced in May it would switch in January 2019 to issuing stipends to each retiree, who can then use the money to purchase coverage.

School Employees Retirement System, which covers janitors, bus drivers and cafeteria workers, is taking steps to link its cost of living allowance to inflation, cap it at 2.5 percent, and delay its onset for new retirees.

Meanwhile, by protesting earlier this week Ohio employees demonstrated that they"re still in the "Shock and Denial" phase of dealing with the news that their pensions were always just a clever little fairy tale told to earn their votes.  Luckily, "Anger and Bargaining" is only 2 steps away in the 7-step process...

Kentucky Public Employee Retirements Surge As Fears Of Pension Collapse Mount

Slowly but surely it is becoming increasingly clear to public workers in states with massively underfunded pensions that they"ve been lied to for the past several decades as their states can"t possibly afford to pay for the retirement they"ve all been promised.  As a local radio station in Bowling Green points out today, fears over potential pension changes in Kentucky have resulted in a surge of early retirements as workers move to lock in payouts before any potential cuts go into effect.

More state workers retired last month than the year before amid concerns that the legislature and Gov. Matt Bevin will make changes to state retirement plans.

David Smith, executive director for the Kentucky Association of State Employees, said state workers have been retiring after consultants hired by the state recommended drastic changes to the pension systems.

“There are folks that are saying you know what, I don’t care, I’m going to lock in my retirement now and get out while I can and fight it as a retiree if they go and change the retiree benefits,” he said.

The Lexington Herald-Leader reports that there was a 20 percent jump in state worker retirements last month.

“Who are they going to replace them with if they truly offer up what they’re proposing or what was proposed? Who is going to want to work for state government? I wouldn’t,” Smith said.

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 Ponzi Exposed: Minnesota Underfunding Triples After Tweaking This One Small Assumption...

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.  

So what allows this ponzi to persist?  It all comes down to one simple assumption: Discount Rates.  You see, if you simply discount future liabilities at a high enough discount rate then you can make any massively underfunded pension ponzi look like a stable, healthy retirement gold mine. 

In fact, just over a year ago we took a look at what would happen if we calculated the true underfunded level of America"s public pensions at more reasonable discount rates.  The result showed that the media"s highly referenced underfunding of $2 trillion soared to something closer to $5-$8 trillion when more reasonable discount rates were employed.

We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.  We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we"ve seen estimates that suggest $3.5 trillion or more might be more appropriate.  We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates.  Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.  

 

Now, the state of Minnesota has gracefully stepped forward to beautifully illustrate our point.  Upon making a few minor "tweaks" to their various funds" discount rates, the state found that their aggregate pension underfunding more than tripled from roughly $16 billion to over $50 billion.  Here"s more from Bloomberg:

Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules.

The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53 percent of what it needed to cover promised benefits, down from 80 percent a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg.

The Minnesota’s teachers’ pension fund, which had $19.4 billion in assets as of June 30, 2016, is expected to go broke in 2052. As a result of the latest rules the pension has started using a rate of 4.7 percent to discount its liabilities, down from the 8 percent used previously. As a result, its liabilities increased by $16.7 billion.

But other factors also helped boost Minnesota’s liabilities: Eight of Minnesota’s nine pensions reduced their assumed rate of return on their investments to 7.5 percent from 7.9 percent, while three began factoring in longer life expectancy.

All of which resulted in this:

Of course, Minnesota"s underfunding didn"t just magically "soar by $33.4 billion" as Bloomberg puts it...in reality, the state"s pensions were always underfunded by ~$50 billion...the only difference is that that some pension administrators finally decided to stop lying to their retirees and report reality.

All of which rendered this Bloomberg map from just two months ago showing an 80% funding ratio for Minnesota completely obsolete...

...Sorry, Minnesota teachers but you"re almost as screwed as your counterparts in Illinois...you just didn"t know it until your bosses finally decided to stop lying to you.

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.