Despite Record Bull Market, Pension Plans in Miserable Shape: Illinois the Worst


The amount owed to retirees accelerated faster than assets on hand despite a record bull market.

The Wall Street Journal reports the Long Bull Market Has Failed to Fix Public Pensions.

“Some of the states allowed themselves to get so underfunded that the higher returns aren’t helping them enough,” said Michael Cembalest, chairman of market and investment strategy for the asset-management arm of JPMorgan Chase & Co. and the author of an annual study on the financial health of cities and states.

Illinois Tops the Worst State List

Illinois, New Jersey and Kentucky top the list of states in worst shape on a percentage of revenue basis.

Chicago the Worst City

Worst Cities on Percentage Basis

  1. Chicago, IL
  2. Baton Rouge, LA
  3. Pittsburgh,PA
  4. Atlanta, GA
  5. Lubbock, TX

Deeper Pension Cuts Didn’t Materialize

Many states and cities reduced benefits for new employees after 2008. But deeper cuts often met resistance from judges, unions and angry constituents—even in some of the most indebted states.

The Illinois Supreme Court in 2015 threw out cuts by the legislature that were expected to save tens of billions of dollars. Kentucky’s legislature last year declined to approve the governor’s proposed cuts to cost-of-living increases for retired teachers after protests brought thousands to the state capitol and forced cancellations of classes in several school districts.

Pension Plan Assumptions

The average pension plan assumption is about 7.3%. That's not going to happen.

Please consider charts and commentary from John Hussman's April 2019 post You Are Here.

Valuations Second Highest in History

Expected Total 12 Year Return is Zero

The following chart shows nonfinancial market cap/nominal potential GDP on an inverted log scale (left), with actual subsequent 12-year S&P 500 total returns on the right scale. As usual, note that speculative bubbles always make it appear that valuations haven’t “worked” in the period immediately preceding the top, precisely because a substantial, if temporary, violation of historical norms is required to get to those extremes. As indicated by other reliable measures, investors are presently facing the likelihood of prospective nominal 12-year S&P 500 total returns averaging roughly zero.

​I remember a little boy listening to a concert at a Fourth of July celebration one year. As the music played, the little boy waved his arms as if he was conducting the orchestra. Monetary authorities are a lot like that, except that everyone who watches these kids at play actually believes that they are, in fact, conducting the orchestra.

I’m utterly mesmerized by the credulity of investors who believe that the Federal Reserve is capable of saving them from every possible contingency, no matter how irresponsible their own speculative behavior might be.

Imagine the shock of pension plans if the 12-year average is as low as 4% a year let alone a total return of zero,

Mike "Mish" Shedlock

Comments (21)
No. 1-11

The greater the insolvency, the larger the bailout. That’s the magic of Centrally Planned MMT.


It’s hard to have “defined benefits” when there is no reliable definition of “defined risk” to work from.


Nothing will change.

Public unions are, by far, the all time largest campaign donors in history. They wield incredible power. And they give nearly all of it to democrats. Democrats will not cut one penny from their insane pensions or benefits.

The public unions expect taxes to be raised and raised and raised some more to cover the insane promises of payback for supporting democrats. Because a "promise is a promise" no matter how fiscally untenable it is.

There is no solution to this problem except let them all go bankrupt with no bailouts.

The best a hard working non-public union taxpayer or business can do is to use the state and city lists (from above) as a DO NOT MOVE HERE warning or a MOVE OUT OF HERE IMMEDIATELY warning list.


You might check out Brian Reynolds, formerly the chief strategist for Rosenblatt, on Real Vision. His thesis is that the pensions' need for a 7.5% return has driven them to buy low grade paper and that the funds for this paper has been mostly allocated to buying back stock, helping to drive the market.


Good analogy, the conductor. My favorite analogy is the rain dance. Because there is lots of capital and liquidity when the economy is going well, the Fed thinks that if it injects money, the economy will pick up. It's like making the street wet before doing a rain dance, because when it rains, the streets are wet.


Most pensions can't or don't invest in the stock market for obvious reasons. So the same thing that's causing a boom in equities is killing fixed rate investments. The FED slashing interest rates.


Public pensions. Franklin Roosevelt said they shouldn't exist. We are now seeing why he was right.

The sales tax here just went up to 10.25%. $10.25 tax on a $100 purchase. Back whenever, the tax was in the 7% range. I would guess that once upon a time it was in the 5% range.

Higher taxes cut the standard of living for the people who produce 70% of the GDP- consumers, who have less discretionary money to spend into the economy. It is a self defeating vicious cycle.

That which cannot continue, won't, which is why in Biblical times, there was a debt jubilee every 50 years.


The new 7% return strategy: Increase property taxes, sales tax etc. It will go bust also but will keep them going till it doesn't work and, like brexit, will drag on a long time and destroy everyone including those without a pension. Public pensions are just like the alcoholic analogy of trying to crawl out of a bucket of crabs.


Yeah those horrible public pensions. Totally unlike social security PENSIONS where people currently get WAAYYY more from it than they ever paid in. "But. but, thats not true!! We paid in that money to SS years ago! It was invested over time! We should get way more than we put in!" Sorry Charlie, your contributions went out as soon as you sent them in ... to older people getting SS. Take a look in the mirror, boys ...


The unions have won, but like the proverbial scorpion riding the frog across the river, they are stinging the taxpayer frogs to death because...they're unions. It's what they do. This will also end. Neither the Illinois Supreme court nor the Kentucky legislature can prevent the coming bankruptcies which will start to roll across these states and others. There is no national political candidate so stupid as to propose a federal bailout for them.

It won't be called bankruptcy, but a 25% benefit haircut and 50 year state General revenue bonds should about do it, and the effects are the same.


US Pensions

It is sad listening to Americans complain about their pension problems; it’s the unions, it’s public pensions, it’s defined benefit plan, it’s social security, it’s Illinois, it’s Chicago, it’s the government, it’s the corrupt financial system, it’s the banksters, etc etc etc.

I guess it must be all those things because many Americans seem to be destined to get less pension than what was promised. As I have suggested before, Mish should choose Canada when he leaves Illinois. If he moves north to Ontario he will find a land of well-run pensions and well-run banks. He shouldn’t have to worry about footing the bill for the well-run, fully-funded, properly invested, defined benefit pension funds that are common in that province.

Here is my previous post:

Mish. You should move to the province of Ontario in Canada. You would never have to pay to see a doctor or to go to a hospital. I checked out their largest public service pensions and they are really well funded HOOPP (hospital workers) is 122% funded, OTPP (teachers) 104%, OPTrust 105% OPB 101% and OMERS 95%. Compare that to Illinois public pensions! They have a Conservative (Like Republican) government. And the climate is similar to Illinois. I expect their would be a lot of wilderness to take photos. The province is huge. It would take 3 days of driving to go east to west or north to south They don’t get hurricanes or earthquakes, though there is the odd rare tornado. I don’t think they get major flooding either. You could live in Windsor and look across the river at poor old Detroit. Or perhaps Niagara Falls, Ontario. Then you could look across the river to Niagara Falls, NY! So you could just drive over a bridge and be back in the US again.The only downside is that you would have to learn to say “eh!” and be really friendly all the time! Do you like hockey?