In today’s episode, we discuss unfunded pension liabilities for older people.

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Overview

• Boomers staying in the workforce even as labor-force participation rate is at lows not seen since the 1970’s.
• Many working out of necessity:
• • Still supporting adult children.
  • No retirement nest egg.
• Public sector employees are immune to this problem, right?
• • The payoff of “generous, assured pensions” may not be so certain.
  • Moody’s says that state pension plans were short by around $1.25T at the end of 2015, which amounts to around 119% of state revenue.
  • The gap is expected to grow in coming years as plans’ returns have fallen far below their 7.5% annual target (earning 0.52% instead in 2016 despite rallies in stocks and bonds).
  • Moody’s calculates the poor performance of pension plans will grow the shortfall to $1.75T in 2017.
  • The states with biggest gaps are Illinois and New Jersey.
  • Some assert that policy makers would not allow for a potential recession as a result of a state and local pension funding crisis. As a result, the federal government would swoop in and to backstop the pensions with increased expenditure monetized by the Fed.
  • Not all share that view, it’s likely that harsh decisions will be made in terms of adding to deficient pension plans and reducing their assumed returns from the apparently out of reach 7.5%.

I hope you enjoy the show.

Best,
Brian

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