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U.S. Public Pensions: In a "Downward Spiral"

City of Dallas pension fund crisis is a harbinger of broader calamity "that is gaining speed"

by Bob Stokes
Updated: December 12, 2016


[Editor's Note: The text version of the story is below.]

It's a bull market, so public pension systems should be in good shape -- but, they're not.

Our July 2016 Elliott Wave Financial Forecast warned:

Many pension fund assets are far more precariously positioned today than they were before the 2007-2009 bear market.

The funding gap for public pensions in 2012 was $1.83 trillion. Today, it's almost twice as large at $3.4 trillion.

Our September Financial Forecast sounded the alarm again by showing this chart and saying:

The chart shows the growing government pension costs (i.e., taxpayer costs) relative to the number of employees. Even the largest U.S. public pension fund is not immune. The California Public Employees' Retirement System returned a paltry 0.6% on its investments through the year ended June 30. It was the worst performance since the bear market ended in 2009. ...  Communities will quickly find themselves pressed to lower payouts or raise taxes.

Indeed, Dallas taxpayers are being asked to fork over big bucks (The New York Times, Nov. 20):

The city's pension fund for its police officers and firefighters is near collapse and seeking an immense bailout.

The request is for $1.1 billion, but even that amount would fall way short of meeting obligations.

Since August, when the pension board proposed benefit cuts, retirees have rushed to withdraw $500 million from the fund. In the latest crisis development, pension officials suspended large lump-sum withdrawals (Dallas Morning News, Dec. 8):

Dallas Police and Fire Pension Board ends run on the bank, stops $154M in withdrawals

With the goal of an 8% return, the Dallas pension fund has invested in a slew of alternate ventures, including risky real estate investments and even a stake in the American Idol production company. As you may know, American Idol is now off the air.

Other U.S. public pension systems have taken on ramped-up risk. Many are in hot water. Our July Financial Forecast noted that the states of Illinois, Arizona, Ohio and Nevada are prime candidates for insolvency. So are the cities of Chicago, Houston and El Paso.

Singing River Health System in Mississippi revealed that its unfunded liabilities skyrocketed from $4 million to $304 million from 2009 to September 2015.

Robert Prechter's Conquer the Crash warned retirees against relying on pension funds.

Now, we are starting to see why.

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