Is Fed Pumping Stocks To Keep Pensions Solvent?

Dave Kranzler profile picture
Dave Kranzler
4K Followers

The pension crisis is inching closer by the day. @CalPERS just voted to increase the amount cities must pay to the agency. Cities point to possible insolvency if payments keep rising but CalPERS is near insolvency itself. It may be reform or bailout soon. - Steve Westly, former California controller and CalPERS board member.

1.5 MILLION RETIREES AWAIT CONGRESSIONAL FIX FOR A PENSION TIME BOMB

In a story buried in the business section of the February 18th NY Times, it was reported that the spending budget passed by Congress included a provision that creates a 16-member bipartisan congressional committee to craft legislation that would provide for the potential bailout of as many as 200 multi-employer pension plans. Like most State public pension plans, most of these multi-employer plans are about to hit the wall of insolvency. A multi-employer plan is a union pension plan that covers employees of union working at different companies. This minor little detail was not reported anywhere else.

A good friend of mine who works at a public pension did an internal study of all major State pension plans and determined that a 10% or more decline in the stock market for an extended period of time would blow up every single public pension in the country. "Extended period of time" was defined as more than 3-4 months. Every pension fund he studied is a monthly net seller of assets in order to fund beneficiary payouts - i.e. the cash contributions from current payees into the fund plus investment returns on capital is not enough to fund current beneficiary payouts. Think about that for a moment.

As such, State pensions have dramatically ramped up their risk profile and most now invest at least 40-50% of their assets in stocks. If you include private equity allocations, the overall exposure to equity

This article was written by

Dave Kranzler profile picture
4K Followers
I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance. Currently I co-manage a precious metals and mining stock investment fund in Denver. My goal is to help people understand and analyze what is really going on in our financial system and economy.

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