MSNBC: Low Interest Rates Squeeze Pension Funds

[Hubbs]

Oops.

Thanks to stock market gyrations and the lowest interest rates in 60 years, millions of Americans are struggling to keep their retirement savings intact and secure their future.

And it's not any easier for managers of their pension funds.

Both groups share a mounting problem. The plunge in interest rates engineered to save the U.S. economy and banking system has left them with a giant money hole to fill. Much like a retiree trying to live off the income from Treasury bonds, when interest rates fall, you need a lot more bonds to generate the same level of income.

The same principle has left the nation’s public and private pension funds badly underfunded.

“We are actually more underfunded than we were at the end of 2008 because of the drop in interest rates since then,” said John Ehrhardt, who tracks fund performance for benefits consultant Milliman.

...

Though the largest states, such as California and New York, face the biggest budget gaps, the pension squeeze is even worse for a handful of smaller states. That’s because the size of their pension fund shortfall is much larger in relation to the size of their economies.

“If it takes up a large amount of their (Gross Domestic Product). Essentially they are going to have to grow their way out of this,” said Pamela Villarreal, a senior analyst at the National Center for Policy Analysis (NCPA). “It’s just not feasibly.”

Connecticut, for example, which has only 27 cents set aside for every dollar of pension liabilities, will have to close a funding gap that represents roughly a third of its GDP, according to an NCPA analysis. The shortfall for Kentucky, which is only 37 percent funded, amounts to 36 percent of GDP. Hawaii, which has set aside only 31 cents per dollar of pension obligations, has to come up with an amount equal to 37 percent of GDP, according to NCPA figures.

Jesus. 37% of GDP? That's a nightmare.

[chipwhich]

Oops.

Jesus. 37% of GDP? That's a nightmare.

This is why all private companies and eventually the federal government will no longer offer pensions. Well everyone but congress. :evilg:

[Thiebear]

it will be the fall of recovery.

[Hubbs]

it will be the fall of recovery.