23 “You can defiantly de- clare you will work ’till you drop, but then there are those unexpected aneurysms, bypass surgeries, layoffs, and ailing spouses needing care.” VI. THE PENSION FUND CRISIS NARRATIVE Related Link • Pensions crisis The official narrative is that we are facing a serious pension fund crisis. This view is shared by David Collum, a Chemistry Professor who publishes an excellent annual overview. In his 2017 Year in Review, Collum provides a good description of the underfunding challenge. Here is his pension fund section republished with his permission: “This massive financial bubble is a ticking time bomb, and when it finally goes off, it is going to wipe out virtually every pension fund in the United States.” – MICHAEL SNYDER, DollarCollapse.com blog The impending pension crisis is global and mon- umental with no obvious way out. The World Economic Forum estimates the pension gap— unfunded pension liabilities—at $70 trillion and headed for $250 trillion by 2050.166 Conservative but still conventional assumptions about prospec- tive investment returns and spending patterns in old age suggest that retiring into the American dream in your mid 60s requires you bank 20–25 multiples of your annual salary (or a defined ben- efit plan that is the functional equivalent) to avoid the risk of running out of money. A friend—a corporate executive no less—retired with 10 mul- tiples; he could be broke within a decade (much sooner if markets regress to historical means). Of course, you can defiantly declare you will work ’till you drop, but then there are those unexpected aneurysms, bypass surgeries, layoffs, and ailing spouses needing care. I’ve seen claims that more than 50 percent of retirees do not fully control their retirement age. “Companies are doing everything they can to get rid of pension plans, and they will succeed.” – BEN STEIN, political commentator The problem began as worker compensation became reliant on future promises—IOUs planted in pension plans—often assuming the future was far, far away. However, a small cadre of demog- raphers in the ’70s smelled the risk of the boomer retirements and began swapping defined-benefit plans for defined-contribution plans.167 (A hybrid of the two traces back to 18th century Scottish clergy.168 ) The process was enabled by the corpo- rate-friendly Tax Reform Act of ’86.169 Employees were unknowingly handed all the risk and became their own human resource specialists. Retirement risk depends on the source of your retirement funds. Federal employees are back- stopped by the printing press, although defaults cannot be ruled out if you read the fine print.170 States and municipalities could get bailed out, but there are no guarantees. Defined-benefit corporate plans can be topped off by digging into cash flows provided that the cash flows and even the corpo- ration exist. The depletion of corporate earnings to top off the deficits, however, will erode equity performance, which will wash back on all pension funds. The multitude of defined-contribution plans such as 401(k)s and IRAs managed by indi- viduals are totally on their own and suffer from a profound lack of savings. Corporate and municipal defined-benefit plans assumed added risks by falling behind in pension contributions motivated by efforts to balance the books and, in the corporate world, create the illusion of profits. The moment organizations began reducing the requisite payments by apply- ing flawed assumptions about prospective returns, pensions shifted to Ponzi finance. My uncanny ability to oversimplify anything is illustrated by the imitation semi-log plot in Figure 25. The red line reflects the assumed average compounded balance sheet from both contributions and market gains. The blue squiggle reflects the vicissitudes of the market wobbling above and below the pro- jection. If the projections are too optimistic—the commonly reported 7–8 percent market returns certainly are—the slope is too high, and the plan will fall short. If the projected returns are reason- able but management stops contributing during good times—embezzling the returns above the norm to boost profits—the plan will fall below projection again. Of course, once the plan falls be- hind, nobody wants to dump precious capital into