Government Pension Plans at Risk!

[Justin Bilyj]

Great article, what proactive steps as an advisor would you help your clients take if they had a concern about this?
What products would you recommend to help mediate any risk in this situation?


Thanks,



"Government employees may currently enjoy higher salaries and benefits than the private sector, but they have been given a false sense of security.
Whether you are a police officer, fireman, school teacher, or utility worker, you could have serious problems down the road.
Chances are that every major metropolitan area in the country is heavily in the red. This means that the jobs and retirement futures of millions of people are under threat.
[The only] option will be for ex-Federal governments to start reducing benefits and firing workers."


Here Comes the Pain: Detroit To "Significantly Cut Vested Pensions" For Retirees
​

 

[scagnt83]

A poorly managed pension being cut is certainly a risk.

It is very hard to generalize here. Pensions vary. Corporate/Municipal financial strength vary. etc etc

Also within the plan it depends on how it is funded and setup as well.

But long story short, a pension guarantee is not 100%.
And government run pensions have a horrid track record.


To mitigate the risk you first find out what you have and how secure it is.

Then you hedge yourself with alternate savings and not rely just on the pension.

Also, Pension Insurance does exist I hear. (401k too)

 

[scagnt83]

Just in today.. Detroit has filed for bankruptcy. They have been living off of Bond money for the past year. Tried to offer 10 cents on the dollar to creditors to save themselves. Of course the creditors told them what they could do with their offer!!! And for just 10% I would take my chances going after assets in court as well!!

How does this relate to this thread? Public pension funds are a very large stakeholder in Detroit's munibonds!!

 

[Justin Bilyj]

Exactly! This was warned about for a long time. I have clients that have their retirement plan with a city and wondering what they can do to protect themselves besides serp etc.

What would you recommend Scagnt?

 

[VolAgent]

Just in today.. Detroit has filed for bankruptcy. They have been living off of Bond money for the past year. Tried to offer 10 cents on the dollar to creditors to save themselves. Of course the creditors told them what they could do with their offer!!! And for just 10% I would take my chances going after assets in court as well!!

How does this relate to this thread? Public pension funds are a very large stakeholder in Detroit's munibonds!!

What assets? Do you really think the bankruptcy court will auction off fire trucks, police cars, library books and buildings, schools, city parks, etc.?

What real asset does a city have that you could actually see being liquidated to settle a bankruptcy? Sure, there is probably plenty of land that either has been taken for back taxes or has a tax lein on it, but no one wants it now.

I bet they don't get much more from the judge than what they were offered.

 

[scagnt83]

If they are lucky they might get 20% of what they are owed in court. But I wouldn't be surprised if they only get the 10%.

Personally, I would go after the gov buildings. But we all know that the judge will never grant that.
Homes would be worthless. The only people left in Detroit are the ones who can't afford to move!

It is a tough situation with no good solution.

What is sad is that underfunded pensions were offered less than ten cents on the dollar!!!
I wonder how much of the city of Detroit's pension plan is tied up in Detroit munis? Hopefully very little or there could be fiduciary hell to pay.

 

[Justin Bilyj]

I remember seeing unfunded liability pie charts for public pensions somewhere before for each state.

I wonder if that is a good going rate, 10-20% on the dollar...

 

[VolAgent]

If they are lucky they might get 20% of what they are owed in court. But I wouldn't be surprised if they only get the 10%.

Personally, I would go after the gov buildings. But we all know that the judge will never grant that.
Homes would be worthless. The only people left in Detroit are the ones who can't afford to move!

It is a tough situation with no good solution.

What is sad is that underfunded pensions were offered less than ten cents on the dollar!!!
I wonder how much of the city of Detroit's pension plan is tied up in Detroit munis? Hopefully very little or there could be fiduciary hell to pay.

And you wouldn't get the buildings, unless they are surplus which means they are worthless. There really is nothing you can take from a city government if you wish to leave it as a going concern. The only things are sports arenas and museums. That is if they are profitable and in the case of the museum you promise to keep it going. Of course, they may also be financed by their own bonds which would make it difficult to take them.

 

[moonlightandmargaritas]

"Serving Ohio AND Greater Cleveland"

Jason, a legitimate question about your motto/tagline...isn't Greater Cleveland in/part of Ohio?

Maybe I'm missin' something?

 

[Justin Bilyj]

You are missing something because my name is not Jason...